Federal Court of Australia

Australian Securities and Investments Commission v Open4Sale Global Ltd (No 2) [2025] FCA 1038

ORDERS

PENAL NOTICE

TO:    OPEN4SALE GLOBAL LTD (ACN 159 248 067)

    SIMEON MICHAEL LA BARRIE

    EWALD HAFER

IF YOU:

(A)    REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR

(B)    DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING,

YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT FOR CONTEMPT.

ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.

THE COURT DECLARES THAT:

A.    On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the first defendant Open4Sale Global Ltd (ACN 159 248 067) (Company), by the acts and omissions of the second and third defendants, contravened s 727(6) of the Corporations Act 2001 (Cth) (Corporations Act) on 101 occasions in relation to the affairs of the Company by:

(i)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with the Australian Securities and Investment Commission (ASIC) contrary to s 727(1) of the Corporations Act; or by

(i)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer disclosure document meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

B.    On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the second defendant, Mr Simeon La Barrie, contravened s 727(6) of the Corporations Act on 101 occasions in relation to the affairs of the Company by, on each occasion:

(i)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with ASIC, contrary to s 727(1) of the Corporations Act; or by

(ii)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer disclosure document meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

C.    On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the third defendant, Mr Ewald Hafer, contravened s 727(6) of the Corporations Act on 101 occasions in relation to the affairs of the Company by, on each occasion:

(i)    distributing or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with ASIC, contrary to s 727(1) of the Corporations Act; or by

(ii)    distributing or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer information statement meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

THE COURT ORDERS THAT:

Disqualification

1.    Pursuant to s 206C of the Corporations Act the second defendant is disqualified from managing a corporation for a period of 12 years.

2.    Pursuant to s 206C of the Corporations Act the third defendant is disqualified from managing a corporation for a period of eight years.

Penalties

3.    The second defendant is to pay to the Commonwealth of Australia a pecuniary penalty in the amount of $2,000,000.00 for his 101 contraventions of s 727(6) of the Corporations Act.

4.    The third defendant is to pay to the Commonwealth of Australia a pecuniary penalty in the amount of $800,000.00 for his 101 contraventions of s 727(6) of the Corporations Act.

5.    The penalties imposed under paragraphs 3 and 4 of these orders are to be paid within 60 days from the date of these orders.

6.    The second and third defendants each have liberty to apply to vary the date in paragraph 5, such application to be made by interlocutory application filed in the proceeding prior to that date, supported by an affidavit giving full disclosure of the defendant’s financial position (including assets, liabilities, sources of income and all other financial resources, whether actual or contingent).

Injunctions

7.    Pursuant to s 1324 of the Corporations Act, the Company (whether by itself, its officers, agents or employees) is restrained, for a period of 12 years from the date of these orders, from:

(a)    offering, within Australia, securities (as defined in the Corporations Act) in the Company or in any Australian entity which purports directly or indirectly to be engaged in the commercialisation of information technology (together the relevant entities) and from distributing application forms within Australia for such offers, that need disclosure under Pt 6D.2 of the Corporations Act, unless:

(i)    a disclosure document for the offer(s) has been lodged with ASIC as required under s 727(1) of the Corporations Act; and

(ii)    the offer(s) and application form(s) are included in or accompanied by a compliant disclosure document as required under s 727(2) of the Corporations Act.

(restrained offer).

8.    Pursuant to s 1324 of the Corporations Act, the Company must, within 48 hours of a written request of ASIC, provide ASIC with evidence sufficient to demonstrate that any monies accepted or solicited in relation to the relevant entities (or any one of them) were not in respect of a restrained offer.

9.    Pursuant to s 1324 of the Corporations Act, Mr La Barrie and Mr Hafer (whether by themselves, their agents or employees) are restrained from:

(a)    offering, within Australia, securities (as defined in the Corporations Act) in the Company or in any Australian entity which purports directly or indirectly to be engaged in the commercialisation of information technology (together the relevant entities) and from distributing application forms within Australia for such offers, that need disclosure under Pt 6D.2 of the Corporations Act, unless:

(i)    a disclosure document for the offer(s) has been lodged with ASIC as required under s 727(1) of the Corporations Act; and

(ii)    the offer(s) and application form(s) are included in or accompanied by a compliant disclosure document as required under s 727(2) of the Corporations Act,

    (restrained offer).

10.    The order in paragraph 9 is to remain in force for a period of:

(a)    12 years in the case of Mr La Barrie; and

(b)    eight years in the case of Mr Hafer.

11.    Subject to any claim of privilege against self-incrimination or exposure to penalty they may make, pursuant to s 1324 of the Corporations Act, each of Mr La Barrie and Mr Hafer must, during the respective periods in which the order in paragraph 9 applies to them, within 48 hours of a written request of ASIC, provide ASIC with evidence sufficient to demonstrate that any monies accepted or solicited during that period in relation to the relevant entities (or any one of them) were not in respect of a restrained offer.

Further orders

12.    Subject to paragraph 14, on or before 10 September 2025, the plaintiff is to file and serve written submissions, not exceeding eight pages, and any affidavit relied upon, in relation to:

(a)    the form of any costs order to be made in the proceeding identifying the parties against whom the order is sought, the basis upon which costs are to be assessed, and whether liability for costs should be joint and several; and

(b)    whether there should be an order precluding the second and third defendants from accessing (whether directly or indirectly) the property of the Company (whether held legally or beneficially) for the purposes of paying any part of the penalties imposed under paragraphs 3 and 4, having regard to [208] and [269] of the reasons for judgment published today.

13.    Subject to paragraph 14, on or before 24 September 2025, the defendants or any one of them may file and serve written submissions, not exceeding eight pages, in response to the materials filed by the plaintiff in accordance with paragraph 12.

14.    In the event that the parties reach an agreed position with respect to a subject referred to in paragraph 12, then on or before 10 September 2025 the plaintiff is to file a minute of order to be made by consent with respect to that subject and, in that event, paragraphs 12 and 13 shall not apply to that subject.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH J

1    The Australian Securities and Investments Commission (ASIC) alleges multiple contraventions of s 727(6) of the Corporations Act 2001 (Cth) against Open4Sale Global Ltd (ACN 159 248 067) (Company) and two of its directors, Mr Simeon La Barrie and Mr Ewald Hafer.

2    The alleged contraventions arise in circumstances where offers were made and application forms were distributed for the issuing of shares in the Company without adherence to disclosure obligations under Pt 6D.2 of Ch 6D of the Corporations Act. The allegations relate to 101 offers of shares made between 13 March 2019 and 26 July 2023 (Relevant Period).

3    As against each of the defendants, ASIC seeks declaratory relief, orders for pecuniary penalties under s 1317G, orders for injunctive relief under s 1324(1) and an award of costs. It further seeks disqualification orders under s 206C and / or s 206E of the Corporations Act against Mr La Barrie and Mr Hafer.

4    As explained below, by the first day of the trial, all of the defendants had admitted that they had each contravened s 727(6) of the Corporations Act by reason of their non-compliance with s 727(1) and / or s 727(2). However, Mr La Barrie and Mr Hafer sought to be relieved under s 1317S of the Corporations Act from the liability to which they would otherwise be subject or that might be imposed upon them because of their contraventions. Additionally (or alternatively) they each submitted that the Court should make an order relieving them from liability under s 1318 of the Corporations Act. To be relieved under those provisions Mr La Barrie and Mr Hafer must show (among other things) that they have acted honestly.

5    For the reasons given below, I am not satisfied that the defendants have acted honestly in relation to their otherwise admitted contraventions. I will proceed to make declarations and to grant most of the additional remedies sought by ASIC, founded in part on the defendants’ admissions and in any event on the facts found on the evidence adduced by ASIC.

6    Despite their protestations to the contrary, I consider the contraventions of Mr La Barrie and Mr Hafer to be particularly serious given the states of mind accompanying them. I have concluded that each of them had a blatant disregard for the law. As explained below, the contraventions have contributed to a situation in which 83 affected persons can have no confidence in precisely what they have invested in and they are deprived of avenues of legal recourse that might otherwise have been available to them under the Corporations Act, had the contraventions not occurred.

7    The Company’s contravention arises because the relevant acts of Mr La Barrie and Mr Hafer must be attributed to it. However, by reason of the disqualification orders to be made against Mr La Barrie and Mr Hafer, each of them will be precluded from participating in the management of the Company. I have concluded that the removal of the individual wrongdoers from the Company’s Board of directors has eliminated the need for pecuniary penalties as a specific deterrent measure against the Company itself. I have also concluded that the objective of general deterrence is served by the suite of orders to be made against the individual defendants. In addition, I am satisfied that the imposition of a penalty on the Company itself may ultimately harm the shareholders of the Company (including those who may have been induced to become shareholders by reason of the contraventions), although not for the reasons advanced by Mr La Barrie and Mr Hafer. For those reasons, I have concluded that there should be no pecuniary penalty ordered against the Company.

8    There will otherwise be declarations and orders substantially in the terms sought by ASIC, namely:

(1)    declarations that each of the defendants contravened s 727(6) of the Corporations Act on 101 occasions in the relevant period;

(2)    injunctions restraining the defendants from future contraventions, the breach of which may result in criminal sanction (including imprisonment);

(3)    the imposition of a pecuniary penalty against Mr La Barrie in the amount of $2 million;

(4)    the imposition of a pecuniary penalty against Mr Hafer in the amount of $600,000.00;

(5)    a disqualification order against Mr La Barrie precluding him from managing a corporation for a period of 12 years; and

(6)    a disqualification order against Mr Hafer precluding him from managing a corporation for a period of eight years.

9    ASIC should have the benefit of a costs order. The parties should be heard as to the form the award of costs should take.

LEGAL CONTEXT

10    Chapter 6D of the Corporations Act is titled “Fundraising”. Its provisions apply to offers of securities that are received in Australia, regardless of whether any resulting issue, sale or transfer occurs: Corporations Act, s 700(4). The objects of Ch 6D include the protection of investors involved in capital raisings: Australian Securities and Investments Commission v Axis International Management Pty Ltd (No 5) (2011) 81 ACSR 631, Gilmor J (at [45]).

11    Amendments to Ch 6D came into force in the Relevant Period. The provisions defining the elements of the contraventions alleged by ASIC in this proceeding did not change in substance, but some have been renumbered. In these reasons I will refer to the provisions as identified in ASIC’s written and oral submissions. No defendant suggested that the amended provisions would yield a different result. Substantive amendments relating to the applicable penalties will be applied later in these reasons.

12    Section 727 of the Corporations Act relevantly provides:

Offer of securities needs lodged disclosure document

(1)    A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.

Offer form to be included in or accompanied by disclosure document

(2)    A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless:

…

(c)    if an offer information statement is used for the offer—the offer or form is:

(i)    included in the statement; or

(ii)    accompanied by a copy of the statement.

Note:    Sections 706, 707, 708, 708AA and 708A say when the offer needs disclosure to investors under Part 6D.2.

Non‑quoted securities—waiting period after lodgment before processing applications for securities

(3)    A person must not accept an application for, or issue or transfer, non‑quoted securities offered under a disclosure document until the period of 7 days after lodgment of the disclosure document has ended. ASIC may extend the period by notice in writing to the person offering the securities. The period as extended must end no more than 14 days after lodgment.

…

Civil liability

(6)    A person contravenes this subsection if the person contravenes subsection (1), (2), (3) or (4).

Note: This subsection is a civil penalty provision (see section 1317E).

13    As can be seen, a contravention of subs (6) will occur where there is a contravention of (relevantly) subs (1) or subs (2). Each of subs (1) and subs (2) have two alternate conduct limbs, such that a contravention of each provision may occur either by the making of an offer of securities or by the distribution of an application form for such an offer.

14    Section 727(6) is a civil penalty provision by virtue of s 1317E. As explained in the pages that follow, it is a pivotal provision in the regime established under Ch 6D of the Corporations Act.

15    For the purposes of s 727:

(1)    the word “securities” includes a share or a debenture in a body (s 700(1));

(7)    a debenture includes a loan (s 9);

(8)    the phrase “make an offer of securities” includes inviting applications for the issue of the securities (s 700(2));

(9)    a reference to the doing of an act or thing includes a reference to causing or authorising the act or thing to be done (s 52);

(10)    the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted (s 700(3));

(11)    an offer of securities for issue (other than a crowd source funding offer) requires disclosure to investors unless s 708 or s 708AA state otherwise;

(12)    a “disclosure document” relevantly includes an “information statement” (s 9);

(13)    section 705 contains a table showing the types of disclosure documents that may be used;

(14)    an information statement is the least prescriptive form of disclosure document and may be used where the amount of money to be raised by the issuer does not exceed $10 million (taking into account certain prior activities of the issuer) (s 705 (item 4), s 709);

(15)    the content of an information statement is prescribed in s 715; and

(16)    as conveniently summarised in ASIC’s written submissions, an information statement must:

(a)    identify the body and the nature of the securities (s 715(1)(a));

(b)    describe the body’s business (s 715(1)(b));

(c)    describe what the funds are to be used for (s 715(1)(c));

(d)    state the nature of the risks involved in investing in the securities (s 715(1)(d));

(e)    give details of all amounts payable in respect of the securities (s 715(1)(e));

(f)    state that a copy of the statement has been lodged with ASIC and that ASIC takes no responsibility for the content of the statement (s 715(1)(f));

(g)    state that the statement is not a prospectus and that it has a lower level of disclosure requirements than a prospectus (s 715(1)(g));

(h)    state that investors should obtain professional investment advice before accepting the offer (s 715(1)(h));

(i)    include a copy of a financial report for the body (s 715(1)(i)), which is for a 12-month period with a balance date that occurs within 6 months before the securities are first offered under the statement, prepared in accordance with accounting standards and audited (ss 715(2)(a)-(c));

(j)    include any other information that the regulations require (s 715(1)(j)); and

(k)    state that no securities will be issued on the basis of the statement after the expiry date specified in the statement (s 715(3)).

16    In Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181, White J said (at [263]):

…  a person may make an offer, or distribute an application form for the purposes of s 727 in a number of ways. This includes acting personally or by employee or agent and by authorising and approving an offer. However, by virtue of s 700(3) of the Act, the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted.

17    The type of disclosure document required to be provided in the present case was an information statement. As mentioned above, such a statement must include a copy of audited financial reports in accordance with s 715(2)(a), (b), and (c) of the Corporations Act.

18    In accordance with s 1317QD of the Corporations Act the defendants bear an evidentiary burden to establish whether any one of the exceptions or qualifications set out in s 708 or s 708AA applied.

19    In order to establish a contravention of s 727(1) or (2) against a person as a primary contravener, it is not necessary for ASIC to show that the person knew that the offer required disclosure, nor that the person knew that no disclosure document had been lodged in accordance with s 727(1), nor that no disclosure document accompanied the offer or application form for the purposes of s 727(2).

20    However, proof of knowledge of the defendants is necessary in respect of allegations of accessorial liability imposed under s 1317E(4)(b) of the Corporations Act. It provides that a person involved in a contravention of a civil remedy provision is taken to have contravened the provision. In accordance with s 79 of the Corporations Act, a person is “involved” in a contravention “if, and only if, the person”:

(a)    has aided, abetted, counselled or procured the contravention; or

(b)    has induced, whether by threats or promises or otherwise, the contravention; or

(c)    has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d)    has conspired with others to effect the contravention.

The importance of s 727 in the regulatory scheme

21    I have mentioned that a purpose of Ch 6D of the Corporations Act is the protection of investors involved in capital raisings. At this juncture, it is appropriate to point out the pivotal function of s 727 in achieving that objective.

22    Section 718 of the Corporations Act provides that a disclosure document to be used for an offer of securities must be lodged with ASIC. Under s 720 of the Corporations Act, the offer of securities for issue requires the consent of every director of the company. It is an offence to process applications for non-quoted securities under an offer that needs a disclosure document until seven days after the disclosure document is lodged. If a person offers securities for issue under a disclosure document, the person must hold in trust any money received in respect of the offer until the securities are issued or transferred, or until the money is returned to the person:  Corporations Act, s 722(1). It is a criminal offence to fail to comply with that requirement:  Corporations Act, s 722(3).

23    Under s 715(3) of the Corporations Act, a disclosure document in the nature of an information statement must be given an expiry date, not later than 13 months from the date of the statement.

24    If a person receives an application for the issue of shares after the expiry date, the person must either return any money received from the applicant, give the applicant a new disclosure document and allow the applicant one month to withdraw the application and be repaid, or issue the shares to the applicant and give them a new disclosure document and a month to withdraw the application and be repaid:  Corporations Act, s 725(2) and (3). It is a criminal offence not to comply with those requirements:  Corporations Act, s 725(1A).

25    Section 728(1) of the Corporations Act prohibits the making of offers under a disclosure document if there is a misleading or deceptive statement in the document or any application form accompanying it, or an omission of material required by (relevantly) s 715, or a new circumstance has arisen that would have required inclusion. A person is taken to make a misleading statement in a disclosure document about a future matter (including the doing of, or refusing to do, any act) if they do not have reasonable grounds for making the statement:  Corporations Act, s 728(2). Subject to some defences, a person commits a criminal offence if they contravene s 728(1) and the misleading statement or omission is materially adverse from the point of view of an investor.

26    Again subject to some defences, an investor who suffers loss or damage because an offer of securities under a disclosure document contravenes s 728(1) may recover the amount of the damage from a person referred to in a table contained in s 729(1). They include not only the person who has contravened s 728, but a director of a corporate contravener, and also persons who have provided information for inclusion in the disclosure document with their consent.

27    Section 739 of the Corporations Act confers upon ASIC the power to make orders (known as stop orders) where it is satisfied that an offer of securities under a disclosure document lodged with it would contravene s 728 of the Corporations Act. If such an order is made, no offers, issues, sales or transfers of securities may be made while the order is in force.

28    The combined effect of those provisions is to create an enforcement regime incorporating the imposition of criminal liability on persons who consent to the provision of information contained in disclosure documents, on directors of companies to which disclosure documents relate, and on those who may make offers or distribute application forms under disclosure documents. ASIC’s regulatory functions are reinforced by its powers to make a stop order in connection with a disclosure document that has been lodged, so preventing a person from offering securities or distributing application forms under or purportedly under the lodged document.

29    Importantly for present purposes the remedial provision in s 728 only applies in connection with a document that meets the description of a “disclosure document”, which in turn is defined (in s 9) to mean a disclosure document that has been lodged with ASIC. In cases where no document is lodged with ASIC at all, that remedial mechanism is lost and some of the provisions relating to misleading statements are not enlivened. Affected investors in such a case may have remedies under s 1041H of the Corporations Act, however that is neither a criminal offence provision nor a civil penalty provision, and the action may not, as of right, be brought against the same array of people mentioned in s 729. A person who makes offers of shares in circumstances where no disclosure document has been lodged therefore engages in conduct that significantly undermines the efficacy of the regime established under Ch 6D of the Corporations Act and deprives investors of some avenues of relief.

30    In addition to the regulatory importance of s 727, the mandatory content of a compliant information statement is such that an investor will be provided with audited information about a company’s financial position, so as to make an informed decision about the investment described in the statement.

Relief from liability

31    Section 1317S is headed “Relief from liability for contravention of civil penalty provision”, it relevantly provides:

(2)    If:

(a)    eligible proceedings are brought against a person; and

(b)    in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:

(i)    the person has acted honestly; and

(ii)    having regard to all the circumstances of the case (including, where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention;

the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.

32    Nothing in s 1317 limits (or is limited by) s 1318. It applies to an officer or employee of a corporation, and relevantly provides (Corporations Act, s 1318(1)):

If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.

33    ASIC submitted that s 1318 has no application in the present case, it not being alleged that Mr La Barrie or Mr Hafer are liable in respect of “negligence, default, breach of trust or breach of duty”. I do not consider it necessary to resolve that argument. As Beech J said in Great Southern Finance Pty Ltd (in liq) v Rhodes (2014) 103 ACSR 137 (at [60]):

It is for a defendant who invokes s 1317S or s 1318 to persuade the court that he or she should be relieved from any liability. That requires the court to be satisfied of three things:

(1)    that the defendant acted honestly;

(2)    of the value judgment that, having regard to all the circumstances of the case, the person ought fairly to be excused for the contravention, negligence, default or breach of duty (as the case may be); and

(3)    that as a matter of discretion the court ought exercise its power to relieve the person from any liability.

(footnote omitted)

34    Given the common elements in both provisions, the directors’ failure to fulfil the requirements of s 1317S (which obviously applies) would naturally lead to a finding that the elements of s 1318 are not established.

35    The requirement that a defendant invoking either provision show that he or she has acted honestly was explained by Middleton J in Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430 as follows:

87    The first requirement is that the court must be positively satisfied that the applicant has acted honestly. A mere absence of dishonesty will not satisfy the requirements of the provisions.

88    For the purposes of this proceeding, I accept that a person acts honestly, in the ordinary meaning of the term, if the person’s conduct is without moral turpitude, that is:

(a)    without deceit or conscious impropriety;

(b)    without intent to gain an improper benefit or advantage; and

(c)    without carelessness or imprudence that negates the performance of the duty in question.

36    His Honour went on to say that if a person is found to have acted honestly, it would then be necessary to make an evaluative judgment as to whether the person ought fairly to be excused, and then to exercise the residual discretion as to whether the grant of relief is appropriate (at [89]). The relevant considerations may include the seriousness of the contravention, its potential or actual consequences and the defendant’s degree of contrition.

37    If the requirements of s 1317S or s 1318 are established, they would not operate to exonerate the defendants as if their contraventions never occurred: Healey (at [86]). The Court must make a declaration of contravention under s 1317E of the Corporations Act if satisfied that the contraventions occurred whether or not it exercises the discretion to relieve them from liability.

THE CASE AGAINST MR LA BARRIE

38    It is convenient to first decide the whole of the case against Mr La Barrie, including questions of penalties and other remedies sought against him. The remedies against the Company and Mr Hafer may then be dealt with having regard to the facts found below and such additional findings as may be necessary to dispose of the cases against them.

39    The principal allegation against Mr La Barrie is that he directly contravened s 727 of the Corporations Act by making 101 offers to Australian investors for the issue of shares in the Company and / or by distributing an application form for the issue of the shares, in circumstances where each offer needed disclosure under Ch 6D of the Corporations Act and:

(1)    no disclosure document in respect of the offers had been lodged with ASIC (as required by s 727(1)); and

(17)    the application forms he caused to be provided to investors were not accompanied by a disclosure document that had been lodged with ASIC (as required by s 727(2)).

40    In accordance with s 52 of the Corporations Act, Mr La Barrie will be taken to have done an act if he caused or authorised the act to be done by another person (whether that be Mr Hafer or the Company).

41    In the alternative, ASIC alleges that Mr La Barrie was knowingly involved in each of the contraventions of the Corporations Act committed by Mr Hafer and the Company such that he must be taken to have committed those contraventions by virtue of s 1317E(4)(b). Given Mr La Barrie’s admissions as to primary liability (and the other factual findings as to Mr La Barrie’s contravening acts), I do not consider it necessary to decide the alternative question as to whether he might also be liable as an accessory to the contraventions of one or both of the other defendants.

Evidence

42    Mr La Barrie did not give oral evidence at the trial, nor did he make any affidavit. His submissions concerning relief from liability were based on the evidence adduced by ASIC. That evidence included documents contained in a comprehensive court book, a supplementary tender bundle, and in records of compulsory examinations conducted pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

43    The Court received that part of the examination transcripts as highlighted by ASIC. I am satisfied that ASIC gave the required notice under s 79(1) of the ASIC Act of its intention to rely on those portions of the transcripts. The examinees included Mr La Barrie, Mr Hafer, Mr Warren Fry (a third director of the Company in the Relevant Period) as well as Mr Ben Grant (who assisted with the maintenance of a share register and the uploading of material to the Company’s website) and Mr Gavin Pinksterboer (a former director and shareholder of the Company).

44    At the hearing, the defendants asserted that additional portions of the examination transcripts should be received. The defendants were afforded an opportunity to file supplementary submissions confirming those additional parts upon which they relied. In their supplementary submissions the defendants did not address that issue, but rather stated that they adopted the highlighted transcript of the examinations as tendered by ASIC. On the assumption that the defendants persist in their reliance upon any additional portions of the transcripts, I do not considerate it necessary to rule on their admissibility. That is because nothing contained in them would alter the conclusions I have drawn, based on the evidence as a whole.

45    Finally, ASIC adduced evidence of Mr La Barrie’s attempts to lodge for filing a document referred to as a “petition” of shareholders. The document is not in fact a petition. Its relevance is discussed elsewhere in these reasons.

Admissions, onus and standard of proof

46    In satisfying myself that declarations of contravention should be made, I have acted on each defendant’s admissions of the contraventions, as alleged on the Amended Originating Process and in ASIC’s Concise Statement filed 19 December 2023.

47    I have also had regard to the material relied upon by ASIC. Apart from the admissions made in this proceeding, the evidence adduced by ASIC is sufficient to establish the contraventions on the balance of probabilities in accordance with s 140 of the Evidence Act 1995 (Cth). The evidence was not contested by the defendants. Whilst the finding of contravention is to be based on the defendants’ admissions, for the purposes of explaining the remedial response I will here set out the findings that together would have established the allegations to the requisite standard of proof, had they not been admitted.

48    It will then be necessary to make more detailed findings for the purpose of considering the mitigating and aggravating circumstances upon which the parties relied.

Finding of contravention

49    The following findings together support a conclusion that Mr La Barrie committed the contraventions pleaded by ASIC.

Offers and application forms

50    The 101 offers forming the subject matter of this proceeding are evidenced and analysed in the affidavit of Ms Holli-Rebecca Linklater, a Senior Investigator within ASIC’s Enforcement and Compliance Division. That affidavit annexes the source documents evidencing the making of offers for shares in the Company and the issuance of shares upon the making of payments to the Company totalling $1,379,750.00.

51    Ms Linklater analysed deposits made to the Company’s bank account held with the Commonwealth Bank of Australia (CBA Account) during the Relevant Period. She identified the person making the deposit and matched (or substantially matched) each name to those appearing in the Company’s share register. The deposits were shown to have been made within 30 days of the date appearing on a share application form relating to the person. Where possible, Ms Linklater then matched the share application forms with issued share certificates, confirming that shares were issued to each person in numbers matching those applied for in the respective share application form. In all but four cases, the date on the application form was within 35 days of the date shown on the share certificate. Of the four exceptions, one application form appeared to contain a date error for the relevant year, and the remaining three were shown to be the subject of correspondence indicating that a longer time was taken for the share certificate to be completed.

52    As a result of that review, Ms Linklater identified 126 instances where deposits into the CBA Account matched share application forms and the Company’s share register. There were 111 share certificates matching the 126 offers evidenced by the application forms and fund deposits.

53    Ms Linklater then reviewed those 126 offers to determine whether shares were issued by the Company to more than 20 unique investors in the 12 month period preceding each offer. Her analysis was not disputed and need not be detailed here. As a result of that analysis, ASIC relies upon 101 offers as forming the subject matter of the allegations of contravention. They are identified at annexure HRL2 to Ms Linklater’s affidavit. It is those 101 offers that are admitted by the defendants and otherwise proven on the evidence before me. The fact that the offers were made and the application forms distributed may be readily inferred from the documentary evidence.

54    The offers were made to 83 people, referred to as “investors”. The amounts invested by them range between $1,000.00 and $50,000.00.

A disclosure document was required

55    Each of the 101 offers evidenced in Ms Linklater’s affidavit met the description of an “offer of securities for issue” within the meaning of s 706 of the Corporations Act. They therefore needed disclosure to investors under Ch 6D of the Corporations Act unless s 708 or s 708AA of the Corporations Act said otherwise.

No exceptions or exemptions applied

56    Section 1317QD of the Corporations Act was inserted by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth). It provides that if, in proceedings of the present kind, the person wishes to rely on any exception, excuse, qualification or justification provided by the law creating a civil penalty provision, then the person bears the evidentiary burden in relation to that matter. The evidentiary burden was a burden of adducing or pointing to evidence suggesting a reasonable possibility that the matter exists or does not exist.

57    The defendants acknowledged that s 708 and s 708AA of the Corporations Act are in the nature of exceptions or qualifications, and that they therefore bore the evidentiary burden described in s 1317QD. That is consistent with the manner in which those provisions were construed before s 1317QD came into force: Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc (2009) 71 ACSR 1, Martin J (at [33]); ActiveSuper, White J (at [436]).

58    The Company and Mr Hafer each admitted that no exemptions applied by way of their concise responses. By the conclusion of the trial, Mr La Barrie had made the same admission by his Counsel. None of them drew the Court’s attention to evidentiary material capable of showing that an exemption under s 708 or s 708AA applied.

59    I add that despite some assertions earlier made by Mr La Barrie in relation to the existence of “sophisticated investors”, I am not satisfied on the evidence before me that any one of the persons who submitted application forms for shares met the description of a “sophisticated investor”. On the basis of Ms Linklater’s affidavit, I find that the defendants did not disclose records that would establish the existence of “sophisticated investors” when invited to do so prior to the trial.

No disclosure document lodged with ASIC

60    No disclosure document was lodged with ASIC prior to the distribution of the application forms or the making of offers forming the subject matter of this proceeding. The evidence discloses that throughout the Relevant Period, there were no audited financial statements in existence for the Company. Until those accounts came into existence there could be no information statement meeting the requirements of the Corporations Act in any event.

61    A document sent to ASIC by Mr Fry on 28 April 2023 (inaptly described by the defendants as an “information memorandum”) does not meet the description of a disclosure document. The asserted significance of that document in its various iterations will be discussed later in these reasons.

No disclosure document accompanying application forms

62    It follows from the above that those to whom offers were made or application forms distributed were not provided with a disclosure document that had first been lodged with ASIC, as required by s 727 of the Corporations Act.

Mr La Barrie caused the offers to be made and application forms to be distributed

63    Findings about Mr La Barrie’s conduct in causing the offers to be made and the application forms to be distributed are set out in the pages that follow. In summary, I find that in the Relevant Period, Mr La Barrie engaged Mr Hafer to seek out investors, caused Mr Hafer to distribute application forms, reviewed the forms and identified when each investor had deposited funds into the CBA Account, then caused the issuing of shares in the Company by personally signing the share certificates. I make those findings in respect of the 101 offers listed in the schedule to the Amended Originating Process.

Capacity to issue shares

64    It may readily be inferred that Mr La Barrie had the capacity to issue shares in the Company within the meaning of s 700(3) of the Corporations Act. Apart from his admission of liability, that inference may be drawn from findings made later in these reasons, concerning his:

(1)    status as managing director;

(18)    description of himself as the “boss man” of the Company;

(19)    conduct in producing the “pitch decks” used by Mr Hafer to procure applications for the purchase of shares;

(20)    assumed role in setting the price for the shares, in reviewing application forms, signing share certificates and approving the issue of shares to investors;

(21)    conduct in engaging Mr Hafer to make the offers and to be paid a commission for that work; and

(22)    status as the only person within the Company having control of the bank accounts into which investors’ funds were received.

65    Together, the above facts and circumstances support a finding that Mr La Barrie contravened each limb of s 727(1) and each limb of s 727(2) of the Corporations Act both by causing 101 offers for the issue of shares to be made in the Company in circumstances where no disclosure document had been lodged with ASIC and by causing Mr Hafer to distribute application forms for the issue of shares unaccompanied by a disclosure document on 101 occasions.

66    ASIC’s claims for relief proceeded from the premise that 101 contraventions occurred and it may therefore be understood to advance its case under each alternate limb of both s 727(1) and s 727(2). My conclusions as to the appropriate remedies would not differ according to which limb is ultimately is adopted.

Submissions regarding relief from liability

67    Neither Mr La Barrie nor the other defendants gave express notice of any intention to rely upon s 1317S or s 1318 of the Corporations Act until the commencement of the hearing on 3 February 2025. In light of the late notice, ASIC was afforded the opportunity to file supplementary written submissions in response to the factual case alleged by the defendants at the hearing. ASIC has not suggested that it would otherwise be prejudiced by the Court deciding the questions arising under s 1317S and s 1318 on their substantive merits and I now proceed to do so.

68    In Healey, Middleton J described the Court’s task under s 1317S and s 1318 as involving three stages of enquiry (at [84]):

(a)    whether the applicant for relief has acted honestly;

(b)    whether having regard to all the circumstances the applicant ought fairly to be excused; and

(c)    whether the applicant be relieved from liability wholly or in part, and if partly, to what extent.

69    His Honour went on to say that to act honestly was to act “without moral turpitude”, adding that a person would be acting honestly if they acted (Healey, at [88]):

(a)    without deceit or conscious impropriety;

(b)    without intent to gain an improper benefit or advantage; and

(c)    without carelessness or imprudence that negates the performance of the duty in question.

70    In Hall v Poolman (2007) 215 FLR 342, Palmer J (at [322]) emphasised that a person’s imprudence would not of itself constitute dishonesty, unless it was “so reckless as to lead to the conclusion that the person could not have been making any genuine attempt at all to act in accordance with his or her duty”. See also Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 (at [419]).

71    Written submissions on this topic were originally filed on behalf of Mr Hafer and the Company through their lawyer. Mr La Barrie was unrepresented at the commencement of the trial. However, by the end of the first day he had retained the same lawyer as the Company and Mr Hafer (having previously retained that lawyer at the time that the proceeding was commenced). Through Counsel, Mr La Barrie confirmed that he adopted the written submissions previously filed on behalf of the other defendants. Those submissions asserted in some detail the reasons why the Court should exercise its discretion under s 1317S or s 1318.

72    Joint supplementary written submissions were later filed on behalf of all of the defendants. For the most part they are a duplication of the original submissions with some material redacted and with the addition of further contentions. ASIC submits that the amendments to the submissions have introduced some uncertainty as to whether Mr La Barrie persists with his reliance on s 1317S and s 1318. I agree. The uncertainty arises because in some instances references to “defendants” have been deleted and replaced with references to Mr Hafer alone.

73    Nonetheless, there has not been a complete abandonment of the case put forward on Mr La Barrie’s behalf at the hearing, which plainly included a claim to be relieved from liability. Rather, there appears to be a shift in the factual propositions put forward in support of Mr La Barrie’s case. As far as I can discern (interpreting the submissions generously in his favour) Mr La Barrie persists with assertions that the following facts and circumstances justify the grant of relief:

(1)    Mr La Barrie is not a professional company director and he has no more than a passing knowledge of the corporate governance requirements of the Corporations Act. His failure to cause the Company to lodge a compliant disclosure document “was a result of ignorance and naïveté and not of dishonesty”.

(2)    The shareholders to whom offers were made were each provided with a document that provided them with information about their investment such that no harm has been suffered as a consequence of the investors not being provided with a disclosure document strictly meeting the statutory requirements of an information statement.

(23)    The Court should infer that the shareholders to whom offers were made are content with their investments, as evidenced (at least in part) by a “petition” naming 110 shareholders who may be taken to have expressed their support for the activities of the directors (including Mr La Barrie) and their disapproval of ASIC’s actions in pursuing this proceeding.

(24)    There has been, as yet, no loss or damage caused.

(25)    The fact that Mr La Barrie has consented to a disqualification order shows that he is both remorseful and embarrassed by his lack of corporate knowledge and compliance with the capital raising requirements of the Corporations Act.

74    The same submissions were relied upon in support of a submission that if Mr La Barrie were not excused from liability, there should be no pecuniary penalty imposed upon him.

Facts and circumstances surrounding the contraventions

75    The following findings and conclusions are drawn from the documents adduced by ASIC (the defendants adducing no evidence). In many respects my conclusions are to the effect that Mr La Barrie’s factual assertions are not sufficiently supported by the evidence. The Court has explored much of the subject matter dealt with below on the defendants’ own invitation. The contraventions in the present case do not directly concern the accuracy of information given to the investors or a failure to keep adequate records. However, Mr La Barrie and Mr Hafer have each brought those issues into play by their pleas to be relieved from liability and by their contentions that no penalty should be imposed.

76    In the pages that follow, statements attributed to Mr La Barrie, Mr Hafer and others are drawn from the examination transcripts., unless it is otherwise stated or apparent.

The Company and other entities

77    The Company was first registered in 2012. It is an unlisted public company. Mr La Barrie has been a director of the Company since its incorporation and was its secretary until 30 September 2020. Mr Hafer first became a director on 1 March 2019. Mr Fry was a director for a period in 2019, and again from 6 October 2020 onward. Mr Pinksterboer was a director between 29 June 2012 and 18 September 2012.

78    In addition to his directorship of the Company, Mr La Barrie is a director and a shareholder of Open4Sale Technology Corporation, a company registered in Delaware in the United States of America (USA Company). It is the surviving entity following a merger with another USA entity, Open4SaleUSA Inc. The number of shares held by Mr La Barrie in the USA Company is unclear, although a 2020 tax return records him as the 100% owner.

79    Mr La Barrie is also the director of Open4Sale International Pte Ltd (Singapore Company). A document in evidence asserts that he owns 97 of the 108 issued shares in the Singapore Company, the remaining 11 shares are held by citizens of Singapore. There is uncertainty in the evidence as to whether Mr La Barrie is or asserts to be the legal owner of the shares referred to in that document.

80    Another records suggest that the Company may own 23.4% of the shares in the USA Company, however, it has not been independently verified. In light of the Company’s extremely poor record keeping, I can place no weight on that document. It is contradicted by other material before me and none of the directors gave evidence in this proceeding to resolve the uncertainty surrounding the relevant corporate relationships.

81    The same document asserts that Mr La Barrie owns 41.54% of the shares in the USA Company and that his two children together own 3%.

82    In his Concise Response, Mr Hafer asserted that certain rights were held “on trust” for Australian shareholders and there were assertions of a “trust” in some of the examination transcripts. However, the documents produced to ASIC or otherwise obtained under compulsive processes do not evidence the existence of any express trust (whether by Deed or otherwise). Mr La Barrie did not give evidence to support the existence of any express trust or the terms of any such relationship. I express no view as to whether there may be a resulting or other type of trust.

83    Neither Mr Hafer nor Mr Fry could point to any document showing that the Company owned shares in either of the foreign companies. Mr Hafer said he believed the Company owned “about 30 per cent” of the Singapore Company and “about the same amount” in the USA Company. He said that the source of his information was Mr La Barrie but added that there were no documents in the nature of share certificates “because we’re still determining what the final percentages are”.

84    Mr Fry could not say how the Company had any interest in the Singapore Company. He said his information about the Singapore Company and USA Company was provided to him by Mr La Barrie and not based on documents. His examination on that topic proceeded as follows:

Q:    … what has Simeon told you about the shareholding?

A:    Well, he’s holding the shareholding in Singapore for the Australian shareholders and he will always guarantee that.

Q:    Is there anything written about that?

A:    I have not seen anything written about that. But, you know, I trust [Mr La Barrie] to his word.  …

85    In February 2024 the Company confirmed by correspondence from its lawyers that it had no share certificates or other documents evidencing the Company’s shareholding in any other company.

86    Mr La Barrie acknowledged there were no consolidated financial statements showing the financial position of the Company, the USA Company or the Singapore Company considered together.

87    I place no weight on the assertions contained in the evidence about the existence and nature of those relationships. The record keeping of the Company is so poor that no finding on the topic can reliably be made. More specifically, the evidence does not support a finding that either the Singapore Company or the USA Company is a “subsidiary” of the Company as has been asserted in Mr La Barrie’s messages to the Company’s shareholders, discussed below.

Expenditure

88    ASIC’s investigations showed the existence of two accounts associated with Mr La Barrie, two Westpac accounts associated with Mr Hafer, and numerous accounts held with Wells Fargo Bank in the United States of America (Wells Fargo Bank NA) associated with Mr La Barrie, the USA Company and the Singapore Company. The funds raised from Australians investing in the Company were deposited into the CBA Account referred to earlier in these reasons. The only person having authority to withdraw money from the CBA Account (including by way of transfer) was Mr La Barrie. Whilst the other directors could access bank statements, they were not provided with live feeds of transactions.

89    The evidence shows (and I find) that:

(1)    at least $4,190,450.00 of the $4,522,782.51 in the CBA Account came from investors in the Company;

(26)    a total of $2,726,529.51 was transferred from the CBA Account to the Wells Fargo Bank NA accounts;

(27)    a total of $1,402,035.00 was transferred from the CBA Account to accounts associated with Mr La Barrie;

(28)    a net amount of $324,450.00 was transferred from the CBA Account to the Westpac accounts associated with Mr Hafer; and

(29)    the closing balance of the CBA Account as at 24 July 2023 was $1,324.88.

90    In his s 19 examination, Mr La Barrie said that he took “a portion” of money raised from shareholders to pay his personal living expenses (including his rent and children’s school fees) or to repay loans he had taken out for that purpose. There is no agreement recording the terms on which he has taken funds for those purposes. The statements he made in the course of the examination were to the effect that he did not require any employment or other agreement to be in place in order to withdraw money from the CBA Account for the purposes of funding his living expenses. The statements were also to the effect that the monies drawn from the CBA Account represented his sole or primary source of income while residing overseas.

91    Mr La Barrie drew money from the CBA Account to make repayments on a credit card he held with Wells Fargo Bank NA.

92    Mr La Barrie also acknowledged that money was taken from the CBA Account and deposited into another account controlled by his family trust, of which he was the beneficiary and only signatory. He asserted that money from the family trust account would then be utilised to make cash advances to accounts in the USA.

93    Mr La Barrie said that he was not an employee of the Company and did not draw a wage. He said that the Company’s only form of income was that raised from Australian shareholders. He said:

So, yeah, we done things abnormal. And one, couldn’t afford an accountant, couldn’t afford a lawyer, not paying me a wage, not doing that. The only main money we cared about was my expenses to live with three young kids then and to pay this team to build something that is going to make us all very happy one day. That is how it has been from day one.

And when it comes to books and paperwork, Mr Fry and Mr Hafer will totally agree with me, right okay, that I am very bad at it, but that is not my forte.

94    Mr La Barrie asserted that the money taken from the Company was also deployed by the USA Company for research and development (including for the payment of subcontractors) and that the USA Company had initially been established to help him to obtain a green card. He asserted that the money taken for research and development was in the nature of a loan from the Company.

95    Mr La Barrie’s assertions that he drew money from the CBA Account in order to fund research and development activities related to the commercialisation of software are not independently verifiable on the evidence and I am not satisfied that they should be afforded any weight. The circumstances are such that no other person had access to the CBA Account and any information the other company directors had about the utlisation of money was information provided by Mr La Barrie.

96    Whilst the other directors had access to the CBA Account bank statements, it was necessary for them to seek explanations from Mr La Barrie as to what specific items of expenditure were for. Mr La Barrie was the only person asserted to have paid invoices referable to any business activities associated with research, development or commercialisation of software. Neither Mr Fry nor Mr Hafer had visibility of the payment of money into or out of the Wells Fargo Bank NA accounts or any other account to which the raised capital was transferred.

97    To the extent that unaudited financial statements exist for the Company, they too are said on their face to have been based on information provided by the directors. Evidence adduced in this proceeding gives the Court no reassurance that they were prepared on the basis of any conventional or reliable system of record keeping.

98    Mr La Barrie acknowledged that there were no documents evidencing the existence of any loan between the Company and any entity to which the capital was transferred.

99    When questioned further about the movement of money from the CBA Account, Mr La Barrie gave the following responses:

Q.    So those funds are, at some point in time, repayable to the Australian based company because they are a loan to the US company?

A.    How do I explain it because you guys will be the experts? Obviously shareholders are putting money in and they have got equity, right okay. I have, the way I do it though every time I move the money, right okay, I have done it as a loan on purpose to show the US company I have got to pay it back.

Q.    Mmm-hmm.

A.    That is why I do it for. So I want the IRS knowing, right okay, that you have given me 10 grand, right okay, woo-hoo, blah, blah, blah. To obviously keep my tax down in the US, it is hang on guys, the money that Holli gave us, right okay, I have got to pay it back one day.

Q.    Yes.

A.    So the US side, all the money coming in from Open4Sale Global is classified as a loan from the AU entity.

Q.    Yes.

A.    That is how it has been from day one.

100    Mr La Barrie asserted that money raised from shareholders was also provided to the Singapore Company, describing that arrangement as a “loan”.

101    Another exchange concerning bank statement entries referring to loans went as follows:

Q.    Okay. Both of those transactions reference ‘Open4Sale loan’ for ‘loan to Open4Sale’. Could you just tell me what those transactions are, please?

A.    Oh that is an easy one to answer. Besides obviously, you know, we raise money through equity, there is many times where I rang Holli or you and said ‘Hey can I have 10 grand until next week’, and that is the truth. Many times. So some of the shareholders would not buy more shares, right okay, but there would be a lot of times, a lot of times, it will come out in the book that I am stuck somewhere in a hotel and I have got no money or something needs to be done and we have got no money. And if there is money coming in, I will say ‘Hey can I just borrow $10,000 until next week’. I have probably done that a hundred times over the last - so that is basically give me money, but I do pay them back.

Q.    So it is a short term loan?

A.    Yeah.

Q.    And are there any terms associated with the loan?

A.    No, I just got to pay it back.

Q.    Right, so then --

A.    No interest.

Q.    No interest?

A.    No.

Q.    And no documentation?

A.    It is just basically the shareholders helping me. Like I said before, this is my family, this is helping me out.

102    That evidence reinforces my conclusion that Mr La Barrie has drawn on the Company’s funds as and when he desires under an undocumented arrangement that he describes as a “loan”. I am not satisfied that the arrangement was disclosed to shareholders during the Relevant Period nor that they have agreed to it on the basis that they are “family”.

103    When it was put to Mr La Barrie that accounts for the Company did not record that it was owed any money from the USA Company or the Singapore Company, he said:

That is probably my fault. All I know is that is what I have done from day one. I just basically, I transfer the money and I just say loan. If there is no paper work, it is my fault. But there is actually no document … saying that Singapore and US owes the Australian company …

104    When asked whether Mr La Barrie had an approval process in place for paying invoices, Mr Fry responded “Well, he pays them. So I guess he approves himself”. He acknowledged that there were no other checks or balances with respect to payments and said he had no contact with any other person regarding the development of software. He said that all of the money expended to date had been raised by the issue of shares.

105    Mr Fry and Mr Hafer had access to CBA Account bank statements, but exercised no control over Mr La Barrie’s expenditure. Their source of information concerning the expenditure was Mr La Barrie. To the extent that either of them made assertions that the money had been dissipated in activities related to the development and commercialisation of intellectual property, I give their assertions little weight given their lack of oversight of the expenditure, their reliance on Mr La Barrie as their source of information and the Company’s abysmal record keeping practices (discussed below) including the ongoing absence of audited accounts.

The Company’s records

106    On 28 November 2022 the Company was convicted of offences arising from its failure to lodge returns and hold an annual general meeting (AGM) in each of the financial years ending 30 June 2015, 2016, 2017, and 2018 contrary to the requirements of s 250N, s 315(1) and s 319(1) of the Corporations Act. Mr La Barrie was a director and the secretary of the Company over those periods. Mr Hafer became a director over that time and was aware of the criminal proceedings during the Relevant Period.

107    When Mr Fry and Mr Hafer commenced as directors they became aware that the Company had not prepared financial statements at all.

108    From about 2020 the Company maintained a website referred to as an “Investor Portal” on which it posted shareholder notices and unaudited financial statements. The information uploaded to the Investor Portal was provided by Mr La Barrie.

109    The Investor Portal contains notices for AGMs for the years 2013 to 2019 and 2021, all of which were notified to be held on 30 March 2022, no meetings in fact being held in the years referred to.

110    Similarly, the Annual Reports that appear on the Investor Portal were not prepared in the years to which they relate, but rather were prepared in the leadup to the “catch-up” meeting held on 30 March 2022. As confirmed by Mr Fry, none of those Annual Reports were lodged with ASIC. I express no view about the validity of an AGM being held in respect of several past financial years.

111    In his examination, Mr Hafer said that there were frustrating delays in the preparation of financial records “because it wasn’t exactly [Mr La Barrie’s] priority”.

112    The Company’s unaudited financial statements for the financial years between 30 June 2016 and 30 June 2022 contain assertions that it had:

(1)    not generated any income in that period;

(30)    accumulated net losses of $8,902.956.00;

(31)    no assets in the nature of shareholdings in any other entity;

(32)    no assets in the nature of intellectual property; and

(33)    no other assets of substantial value.

113    Mr Fry said that he prepared financial accounts for the Company based on information drawn from the bank statements for the CBA Accounts (discussed above) and information sourced from Mr Hafer about money raised by the issue of shares.

114    The Company’s Annual Report of 2022 asserts that in that financial year it had operating expenses referred to as “IP & Patent Costs – USA” and “Research & Development Team – USA” in the respective amounts of $552,232.00 and $74,650.00. However, as I have identified elsewhere in these reasons, the evidence does not support a finding that the Company owns intellectual property or that it is the holding company of any entity that does.

115    I have mentioned that the Company’s 2015 Annual Report was in fact prepared in 2022. It contains a “Chairman’s message to Shareholders” by which Mr La Barrie made the following statements:

(1)    the Company “via its subsidiaries” had obtained three registered patents and that there are two pending patent applications; and

(34)    there were no encumbrances on the patents or patent applications and the Company was “therefore free to exploit the intellectual property rights unencumbered”.

116    A Chairman’s message contained in the 2019 Annual Report (also prepared in 2022) referred to a “USA subsidiary”, and a further Chairman’s message of 2021 referred to a “Singapore subsidiary”.

117    Following his s 19 examination, Mr Fry produced to ASIC the Company’s unaudited financial statements for the financial years ending 30 June 2023 and 30 June 2024. The 2023 statements contained (for the first time) a reference to an asset with a value of “$10,547,765” with the description “Loans – Open4Sale US Subsidiary”, comprising its total assets (other than an amount of $6,110 cash at bank). The financial statements for that year do not otherwise record any other asset in the nature of shares or intellectual property. The 2024 statements record that the “loan” said to be owing to the Company had increased to “$11,802,026” representing all of the Company’s assets (other than an amount of “$4,910” cash at bank).

118    In his s 19 examination (conducted on 23 January 2023), Mr La Barrie said that there were no documents in existence recording that the Company was owed money by the Singapore Company or the USA Company.

119    There is no explanation of the loans in the financial statements, nor do the financial statements record any revenue in the nature of interest on the loans. There is no documentary evidence of the terms (if any) of any loan agreement between the Company and the USA Company. It may be that the financial accounts reflect a circumstance in which all of the capital raised by the issue of shares in the Company has been spent by other persons or entities in circumstances giving rise to an obligation to repay.

120    The Company did not maintain its own share register prior to March 2022. The documents it provided ASIC to evidence its memberships comprised bank account details showing cash receipts together with share application forms and some share certificates. In August 2021, the Company engaged an external provider to prepare a share register. The register it produced inaccurately describes some shareholders as having a “first investment date” of 1 March 2022. I infer that the Company had not given the external provider sufficient records for an accurate date to be included. Proof of the 101 contraventions in the present case does not depend on the “start date” referred to in the share register but instead is achieved by the process described in Ms Linklater’s affidavit.

Dealings with auditors

121    When asked about the preparation of audited financial statements, Mr La Barrie said that he had refused to have the audits performed by accounting firm BDO because he objected to the cost. He said, “in my nice language I told them where to go because I wasn’t going to pay them $50,000”. He later said that he was not going to pay $50,000.00 “for a bunch of idiots”.

122    Mr Hafer said he was aware of the need for the Company to have audited accounts. He said that BDO had been engaged after he and Mr Fry became aware that there were no financial statements or audited accounts. He said that the issue of corporate governance had been raised at directors meetings a number of times, adding that Mr La Barrie was not a “details man” and that “he just basically, you know, left a lot of it and we have just kept behind him and sorting that, fixing it up basically”. As to the engagement of BDO, he said:

We did engage BDO at some point, but then there was information they required that we had trouble getting hold of, and we wanted to do the last- the most previous three years then, but BDO wanted to go right back to 2014, essentially the beginning of the company, and we didn’t have that information and it got to the point where they disengaged because they said they didn’t have the information, and essentially they couldn’t carry on.  …

123    Mr Hafer’s explanation for BDO not continuing with an audit is consistent with other evidence about the lack of records sufficient to enable an audit to be conducted at all.

124    I find that the causes of the BDO engagement coming to nought was the failure of Mr La Barrie to cooperate in the provision of funds to pay the auditors coupled with an absence of records sufficient to enable an audit to be conducted.

125    In March 2023, Mr Stephen Noble of Australian Independent Audit Services was engaged to prepare audited financial statements for the Company. In his affidavit, Mr Noble explained that he attended a meeting at the office of the Company’s lawyer at which Mr La Barrie, Mr Fry and Mr Hafer were present. He said that in March 2023 he sent a letter of engagement for the conduct of audits for the years ending 30 June 2017 to 30 June 2022, together with a request for documents (including an updated shareholders list). The engagement letter was signed by Mr Fry in April 2023.

126    In his affidavit, Mr Noble said that as part of the audit process he was given access to the Company’s Xero accounting file which appeared to him to be “grossly inadequate”. He said that the Xero system and the financial statements provided to shareholders did not match. In May 2023, Mr Noble sent an email to the Company’s directors and lawyers setting out the items that were required to progress the audit. Mr Noble was not provided with the information he had sought. He reiterated those requests in June 2023. He emphasised the importance and urgency of a need for a response. After a further request to provide the information, Mr Noble terminated the appointment because his requests for information had been ignored. Mr Noble later received a telephone call from Mr Fry asking if he would consider changing his mind and continue with the audit. Mr Noble declined that request. He did not receive any communications from Mr Hafer or Mr La Barrie. As at the date of his affidavit (August 2024), Mr Noble had not been paid for the work he had undertaken in progressing the audit.

127    Mr Noble’s affidavit was not objected to, nor was Mr Noble required to attend for cross-examination. I accept the truth of his evidence and find that a reason for the termination of the engagement was Mr La Barrie’s failure to provide records to facilitate the audit, including records relating to his own drawings from the Company’s funds to fund his personal lifestyle.

Intellectual property

128    In evidence are two intellectual property reports prepared by a firm in the USA asserting that Mr La Barrie had assigned various patent applications to the Singapore Company and an entity known as Open4SaleUS Inc (a constituent entity in the merged USA Company).

129    Mr La Barrie said that the intellectual property in the software was owned by the Singapore Company. He said: “the [Company], I call it the bank, okay. It is the funder. The [USA Company] is the R&D. And the [Singapore Company] is the protection”.

130    Also in evidence is a valuation report relating to intellectual property authored by “Five Prime Advisors”. The report is said to respond to a letter of engagement, but no copy of that letter is in evidence. The authors purport to provide a valuation of intellectual property of the Company. I say “purport” because the evidence before me does not support a finding that the Company owns intellectual property.

131    A covering letter to the report is addressed to Mr La Barrie and dated October 2023 (that is, after ASIC commenced its investigation). The sources of information upon which the valuation is based is said to include “information obtained from discussions with management of the company”. The report is replete with disclaimers to the effect that its authors have relied upon the accuracy and fair presentation of financial and other information provided to them.

132    The authors refer to the Company’s “stated near term objective of raising capital via public markets in Asia and Australia”. The following passage provides further information about the purpose for which Mr La Barrie obtained the valuation:

Open4Sale Global Limited (the Company) retained Five Prime Advisors, LLC (FPA, (W)we, (U)us, or (O)our) on August 8, 2023 to estimate the fair market value of the intellectual property and equity of the Company, as of September 30, 2023, for the purpose of establishing a datum with respect to discussion with potential investors regarding an issuance by the Company in the near term of a priced round of equity (the Valuation). The conclusion of such analyses is contained herein (the Report).

133    It is reasonable to infer that the stated objective of raising capital in Asia and Australia was communicated to the authors by Mr La Barrie.

134    The authors estimate the fair market value of certain patents at US$37.619 million.

135    A letter from Company’s lawyer dated 8 February 2024 confirmed that there were “no agreements, licences or arrangements granting the [Company] the right to use any patents, trademarks or other intellectual property in connection with the business and product development activities of the [company] over and above ownership of the patents themselves referred to above”.

Distribution of application forms and issue of shares

136    In his examination, Mr La Barrie agreed that he had been the Company’s Chief Executive Officer since 2012, that he was the Company’s “boss”, and that it was accurate to describe him as a Managing Director.

137    He said that Mr Hafer was paid a “referral commission” from payments made by new shareholders of between 5% and 10% and that Mr Hafer was paid because he “sourced the money”. The payments were made without invoices and there was no documentation of the financial arrangement between Mr La Barrie (or the Company) and Mr Hafer.

138    Mr La Barrie described issuing shares to those who completed application forms once he was satisfied that the forms had been correctly completed and the money had been received by the Company. He said that he was responsible for fixing the price per share and had never changed the price. He said he had never received advice about the value of the Company. He said that he had personally signed every share certificate.

Pitch decks

139    Throughout their examinations Mr La Barrie and Mr Hafer referred to prospective investors receiving an “information memorandum” or “IM”. Mr La Barrie said that he “signed off” or authorised the content of each of them. He acknowledged that they related to the affairs of the USA Company and agreed that since 2012 there had been no document of that kind relating to the Company. On that topic, he said:

… Australia was the bank, the US company is … the one that is going to make everyone rich, make everyone money so it was always done through the US company.

140    In August and October 2022, the Company provided ASIC with the materials it had used to attract investors between 1 January 2016 and 6 October 2022. They take the form of presentation slides and may be referred to as “pitch decks”. The earliest is dated August 2018 and the latest August 2022. In covering correspondence, the Company (by its lawyer) confirmed that it had used similar materials before 2018 but the earlier versions could not be located. The pitch decks variously refer to Mr La Barrie by the title “CEO”, “Founder”, “Inventor” and “COO”. They each contain a disclaimer, expressed as follows:

DISCLOSURES

The information contained in this presentation (this ‘Presentation’) has been prepared solely for informational purposes and contains confidential and proprietary information, the disclosure of which could be harmful to Open4Sale Technology Corporation (the ‘Company’).  …

141    Notably, that is a reference to the USA Company. The disclaimer goes on to state that the accuracy of the information provided could not be guaranteed. It continued:

This Presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with the Company or any of its affiliates. Any such offering will be made only at the recipient’s request. Any offering or potential transaction will be made pursuant to separate documentation negotiated between the parties which will supersede entirely the information contained in this Presentation.

142    The pitch decks do not meet the statutory description of an information statement for reasons comprehensively explained in ASIC’s primary written submissions. Without being exhaustive, the pitch decks:

(1)    contain no references to the Company other than on its penultimate page, described as a “Securities Application Form”;

(35)    do not describe the securities being offered other than the references to “shares” in the context of the securities application forms;

(36)    do not contain any reference to a business carried on by the Company as opposed to an asserted business of the USA Company (described in two of the pitch decks);

(37)    do not contain a clear description of how money raised from recipients of the documents will be used other than in the most general terms, such as:

Why are we raising capital again?

Create a SUPER APP integrating with Shopping Malls and Retailers, allowing them access to a cross-border over trillion-dollar market (and still growing).

This can enable us to achieve over 1 billion in sales in three years.

(38)    do not contain any statement of the risks involved in investing in the securities; and

(39)    do not contain any audited financial reports yet contain projections of revenue through to 2027 in the amount of US$57 billion.

143    Both Mr Fry and Mr Hafer said that Mr La Barrie was responsible for the information contained in the pitch decks and I find that to be so. Mr Fry added that he had not been consulted about their content.

144    None of the directors gave evidence capable of satisfying the Court that there is a reasonable basis in fact for the projections of revenue and other information conveyed by the pitch decks.

145    I have mentioned that for a short period the Company had Mr Pinksterboer as its director. In his s 19 examination, he described his concern that the pitch decks were nothing more than “marketing rubbish” including because of his concern that the legal relationship between the shareholder investors and the owner of any intellectual property referred to in the pitch decks could not be ascertained and other information contained in them could not be substantiated. For similar reasons, the Court rejects the defendants’ implied invitation to proceed on the basis that the pitch decks supply reliable evidence of the facts asserted by Mr La Barrie concerning the conduct of any research, development and commercialisation activity, the dedication of the raised capital to any such purposes and the prospects of the Company’s future revenue (or the future revenue of any other entity).

Legal advice

146    On 26 October 2021, there was an exchange of correspondence between the Company’s lawyer and its directors concerning non-compliance with Ch 6D of the Corporations Act. The correspondence is in the form of an email chain in which Mr La Barrie and Mr Hafer were copied. Also included was Mr Fry and Mr Pinksterboer. The email chain runs as follows:

(1)    The lawyer sent attached correspondence in an email titled “Current Issues facing the Company”. The attachment is not in evidence (or at least the Court was not specifically taken to it).

(40)    Mr Pinksterboer responded:

Hi Brendan,

Thank you for the detailed analysis of the status of the ‘company’

From my interpretation of this advice the directors have two choices;

1.    Continue on the current trajectory in the face of the advice that sets out that the Directors are presiding over a $7m fraud wherein the sale of shares are being misrepresented and shares are being sold in a company with no assets and with no control over the assets with the funds siphoned overseas and spent with no oversight. This choice will see the directors prosecuted and the entire company collapse – the failure of the company to complete the Audit will result in ASIC prosecution and the rest will follow from that; or

2.    Act immediately on the recommendations set out in the letter and write to all subsidiary company’s directors and spell out what is required and get it all resolved urgently, we must minute [all] correspondence and meetings including telephone conversations.

We have very little time because assuming that AGM date is successfully extended to March 2022, effectivity everything needs to be fixed across Australia, US and Singapore and the Audit completed by January 2022

(41)    The lawyer confirmed the likelihood of prosecution and that Mr Pinksterboer was correct in terms of the actions required and the level of documentation required.

(42)    Mr Pinksterboer’s response raised another matter to address, being “the sale of shares to raise capital in the face of the advice” that had been given, adding four numbered paragraphs as follows:

1.    I would presume that share sales must halt;

2.    Where the company is in receipt of funds from shares sold recently those funds should be held ‘in trust’ in the company account until it resolves a solution

3    If the Board elects to carry on per option 1 then the directors will have to consider their positions? (potentially the board is then knowingly complicit in ongoing illegal conduct?)

4.    If the board elects to proceed with option 2 then that process will have to be underway before any more capital can be raised or released?

(43)    The lawyer gave the following responses:

1.    Share sales without a disclosure document are a breach of the Corporations Act unless you fit within one of the exemptions – I cover them below. With no actual ownership of offshore assets they must stop;

2.    Yes;

3.    If there are funds in the US account they can and should be used to cover issuing of shares to aussie shareholders in the US Company to mirror the aussie shareholding as per what was promoted to the aussie shareholders. Same for Sgp Co. This then is using funds to complete appropriate ownership of shareholdings in offshore companies as was understood by the buyers. If there are funds in the Aussie account they should not be paid into the US account but should be paid to whomever undertakes the share transfer/issue in the US, and in Sgp. I

4.    In other words if funds are used to issue or transfer shares so the offshore ownership structure in both countries becomes what it should be then the directors would be doing the right thing.

You can raise capital as long as you have some form of disclosure document - an offer information statement, (but this needs audited financials attached) a prospectus, or an information memorandum, a pitch deck if using one of the exemptions – technically the document should be lodged with and approved by ASIC but in practice supplying nothing is the problem. It does not need to be perfect but it should accurately cover the legal position – which is difficult with the now knowledge of the board - so in effect now you know you can’t raise capital without a document (unless you fit one of the exemptions below), you can’t do one anyway as accurate description of the offshore structure would preclude raising any capital.

If and when you fix the offshore structure you can raise capital – with a proper IM. I can help with that if you wish.

These are the exemptions to an approved disclosure document.

A disclosure document is not required when:

•    an offer is a personal offer, and if:

•    offers or invitations have been made to fewer than 20 persons in the previous 12 months, and

•    the new offer will not result in more than $2 million being raised in that 12 months (see sections 708(1)–(7));

Note:  You must not advertise the offer when you rely on this exemption

•    the offers are made to specified people who are presumed not to need disclosure because of their financial capacity, experience, association with the issuer or wholesale status (see sections 708(8)–(12));

•    the offers are made to current holders of the securities (see sections 708(13)–(14A));

•    no money or other form of payment is payable for the securities (see sections 708(15)–(16));

•    other disclosure regimes under the Corporations Act apply (that is schemes of arrangement and takeovers) (see sections 708(17) and (18));

•    the offers are made to creditors under a deed of company arrangement, if certain conditions are met (see section 708(17A));

•    the offer of debentures is made by certain types of financial institutions (see section 708(19)).

Therefore you can raise up to $2m with less than 20 shareholders in 12 months with a disclosure statement such as an IM or pitch deck which is not approved by ASIC.

Otherwise disclosure and approval of the disclosure document is required.

Regards

147    That exchange occurred during the Relevant Period. The contravening conduct continued for more than four months afterward.

148    I infer that both Mr La Barrie and Mr Hafer received and read the legal advice. So much may be inferred from the list of recipients. Neither made any submission to the effect that the inference was not open, indeed this oral submission from the defendants’ lawyer and Counsel (the author of the advice) only serves to reinforce it:

MR CONNELL:    I understand what your Honour is saying and there’s no question that they were supplied advice from before or at least there’s evidence in front of your Honour on that letter from me to them. So that was several years ago. Despite that, they’ve never managed to produce a disclosure document, a compliant disclosure document, and they’ve never managed to produce audited financial records and I have submitted and conceded on their behalf that the financial records that they’ve actually lodged are inaccurate to a remarkable degree.

Warnings and undertakings

149    By letter dated 12 August 2022, ASIC gave notice to the Company regarding its non-compliance with s 727 of the Corporations Act.

150    By letter dated 29 November 2022, ASIC wrote to Mr O’Connell in his capacity as lawyer for (relevantly) the Company, Mr La Barrie and Mr Hafer. ASIC expressed concerns that the Company had continued to raise capital in circumstances where no disclosure document had been lodged. In December 2022, ASIC obtained written Undertakings from each of the Company’s directors in the following terms:

I [name]

undertake that [I]:

a.    will not make an offer of any securities in Open4Sale in any circumstances where disclosure would be required to investors pursuant to Part 6D.2 of the Corporations Act 2001 (Cth) (Corporations Act);

b.    will not distribute an application form for securities in Open4Sale in any circumstances where disclosure would be required to investors pursuant to Part 6D.2 of the Corporations Act;

c.    will not otherwise aid or be involved in the offering of securities in Open4Sale in any circumstances where disclosure would be required to investors pursuant to Part 6D.2 of the Corporations Act; and

d.    will comply with this undertaking from the date the undertaking is signed, until 1 July 2023 or the fifteenth (15) day after having lodged an Information Memorandum with ASIC, whichever is the sooner.

151    The Undertakings remained in effect until 1 July 2023.

Loan agreements

152    In the period between 3 September 2022 and 26 October 2023, the Company entered into 53 loan agreements with 31 investors, in which the Company was identified as the “Borrower” and the investor identified as the “Lender”. Amounts deposited into the CBA Account referable to those agreements total $858,000.00. Of those loan agreements, 30 were entered into in the period when the Undertakings remained in force, referable to deposits into the CBA Account totalling $543,000.00.

153    The loans are “debentures” and therefore “securities” as defined in the Corporations Act. ASIC invites the Court to find that by causing the Company to enter into the loan agreements the defendants breached the Undertaking. I have not made that finding in this proceeding, for reasons explained below.

Dealings with shareholders

154    When asked how he would respond to shareholder requests for information, Mr Hafer said:

We are going to market. We are ready – we are getting ready to go to market. We expect to be in the marketplace, we are just doing deals with the retailers now and organising with a partner to bring in a large number of consumers. And, I mean, we talk to them in more detail, but that is just the gist of it, you know, in terms of what the latest update is and where we are at.

155    When asked if he would give a more specific timeframe he said that the dates were approximate as that was the best information he had “which comes from [Mr La Barrie]”.

156    Mr Fry confirmed that all of the information contained in newsletters sent to shareholders originated from Mr La Barrie.

157    In evidence is a bundle of correspondence from Company shareholders (or their advisers) raising concerns about their investments. Some express concerns that the ASIC records for the Company do not disclose the issue of shares to them, some requested a copy of the share register (which did not exist at the time of the request).

158    In correspondence with one shareholder over a number of years, the shareholder expressed alarm and distrust at the Company’s inability to produce a share register and to answer straightforward questions about its affairs. That shareholder lodged a “query” with ASIC. In response, the Company (in correspondence copied to Mr La Barrie) offered to transfer the shareholder’s shares to another person, but only on the condition that he withdraw his complaints, cease his “agitation” and not disclose the transfer to other shareholders.

159    Another shareholder wrote to recipients including Mr La Barrie and Mr Hafer as follows:

Gentlemen,

33 months have passed since I invested in the open4sale/ [software] scheme.

I have not received any official receipt / acknowledgement / share certificate / notification / newsletter / meeting notice etc.

By now most individuals or organisations would believe that they have been scammed and would have taken action for recovery or compensation? … Should I have the same concerns?

Can someone please respond accordingly.

160    Other shareholders expressed concerns about lack of transparency, sought information about shareholder “exit”, expressed desperation and frustration about the lack of information and the lack of professional language in documents. Another asked if he was close to getting some money back and several others made repeated unanswered requests for updates.

161    In October 2021 Mr La Barrie forwarded to Mr Hafer an email from a shareholder who had expressed concerns about many shareholders having invested their personal savings, and asking for an update. In the forwarded message, Mr La Barrie referred to shareholders as “Idiots”. He used the same word to describe shareholders in an email to Mr Hafer and Mr Fry in November 2021.

Alleged “petition”

162    For several weeks prior to the trial, Mr La Barrie referred to the existence of shareholders who would be called to give evidence as part of his case, asserting that they had signed a petition to express their concern about ASIC’s conduct in bringing this proceeding. The written submissions of the Company and Mr Hafer made reference to a petition as somehow supportive of their case, and those written submissions were then adopted by Mr La Barrie when he engaged the same lawyer. The difficulty was that no evidence in the form of a petition had been accepted for filing and the defendants’ lawyer did not have possession of the document at trial in order to adduce it as part of the defendants’ case.

163    ASIC then tendered (without objection) correspondence indicating that Mr La Barrie had attempted to file a document in the South Australia Registry purportedly in the form of a petition. The document was rejected for filing. ASIC also tendered a screen shot (again without objection) of document properties to support a finding that the electronic document comprising the supposed “petition” was created by Mr La Barrie. In his correspondence to the South Australia Registry, Mr La Barrie said:

With instructions from many of the Open4sale Global shareholders as the mom and dad investors I wish this petition to be lodged regarding case SAD 187/2023 Open4Sale Global

I will be contacting the courts regarding additional help in the process of uploading all the signature by all these shareholders and these petitions to be allowed to attend the SAD 187/2023 court trial as witnesses in the defense of the company and its directors.

Regards

Simeon La Barrie

164    The attached document reads as follows:

Open4sale Global Shareholder Petition October 2024

A shareholder approached the directors to provide this petition to all the shareholders.

The shareholder verbally requested against the director’s wishes:

I request a petition prepared by myself be sent to all the shareholders of o4s Global.

We have at your request sent you the enclosed petition for your perusal and decision. For further information or discussion please contact [name] on [phone number]

-------------------------------------------------------------------------------------------------------

OPEN4SALE (O4S) SHAREHOLDERS PETITION TO ASIC AND ITS PROSECUTION THAT IS DETRIMENTALLY AFFECTING SHAREHOLDERS INVESTMENT.

(This petition excludes the CEO, Simon La Barrie Director and Ewald Hafer Director)

It has come to our attention as shareholders that:

1. ASIC has acted on unfound accusations that Open4Sale is probably a scam and our belief is the person making the scandalous statement to ASIC was not a shareholder.

ASIC intruded into the O4S accounts overseas, namely Wells Fargo. These actions caused Wells Fargo to close the US company accounts in the O4S name i.e. our account based on concerns that it was a scam.

O4S, as a company requires operating accounts to continue the transactions of the business. This was impeded by ASIC and when our CEO moved to set up another operating account, he found that other banks were suspicious due to the Wells Fargo saga, making it much harder and being questioned when applying, to set up another account.

ASIC’s actions based on unfound accusations from a person who does not even own shares, has caused damage to our brand name in the global arena.

We as shareholders of the Australian company are hoping for a satisfactory outcome in the very near future and for our investments to be realised, but we find that ASIC’s investigation has seriously impeded our progress.

We as shareholders assume that ASIC conducted no due diligence, and investigations were done on the person making the accusations.

ASIC accessed with their power, and unknowingly to the CEO, the account in Wells Fargo, without asking the CEO (La Barrie) for statements first. He would have provided them on request. This has had serious global implications on our brand.

ASIC’s intervention and use of their power to access accounts overseas thereby damaged our brand and, in turn, had the impact of impeding our investments.

We as shareholders of the Australian company are extremely concerned that defending this action has cost significant legal fees and will cost the company significant monies in terms of any fines that may be levied in circumstances where none of the shareholders believe that the prosecution is for the benefit of the shareholders themselves or the company and in fact quite the contrary.

This is not a scam. We as shareholders are not happy with ASIC’s conduct. ASIC is under legislation enforced to protect us, but in fact has caused us damage by their actions.

The actions against our CEO La Barrie and Director Ewald Hafer does nothing to assist, other than doing further damage to the brand and their personal reputations.

We reiterate that ASIC has cost us heavily in legal fees and will cost us heavily due to potential heavy penalties being imposed on our company. We have at this point, not calculated the total losses to our brand.

All actions have been costly to us, and have been of no benefit to us, the shareholders, nor to the Australian taxpayer.

Our brand and pecuniary losses have been substantial ever since ASIC began its investigation based on unfounded accusations. We will consider how to move forward after the damage, which may include approaching the Media, if need be, where this harassment continues through misuse of power.

The shareholders who have signed this petition and, we consider all of those who have not yet responded, are not happy with this ongoing debacle.

Open4sale Global Shareholder responders in agreeance with this petition

…

165    There follows a list of 110 names. There are no signatures below the names. The person named in the opening words of the document was not called by any party.

166    The defendants (including Mr La Barrie) invited the Court to find that the petition represents “support for the activities of the Directors generally by those shareholders named in the petition”. I will not make that finding for three reasons. First, on the evidence before me I am not satisfied that the document was created by any shareholder or shareholders rather than by Mr La Barrie himself. Secondly, the circumstance that the document contains a list of names does not provide proof that the persons named are aware of the document, nor that they agree with its contents. Thirdly, even if a shareholder agreed with the assertions made in the document, on the material before me, I am not satisfied that the shareholders to whom contravening offers were made have been provided with accurate and verifiable information about the affairs of the Company so as to be in a position to express any view at all about the competency or honesty of the Company’s directors.

167    ASIC relies upon the document as revelatory of Mr La Barrie’s state of mind and specifically his attitude toward the importance of complying with the law. I am satisfied that the document is relevant for that purpose and will discuss its significance in due course.

No relief from liability

168    Having regard to the facts and circumstances as found above, there is no proper evidentiary basis for a conclusion that Mr La Barrie is a person who could or should be granted any form of relief under s 1317S or s 1318 of the Corporations Act. In addressing the submissions on that topic, I will take the opportunity to make findings about the seriousness of Mr La Barrie’s contraventions having regard to the state of mind accompanying them.

169    The submission that Mr La Barrie’s contravention was “a result of ignorance and naïveté” is so far removed from reality it hardly needs addressing. It is dispelled by the singular circumstance that upon receiving unequivocal legal advice on the very topic, Mr La Barrie continued to contravene s 727 of the Corporations Act. Moreover, to the extent that Mr La Barrie invites the Court to find that he was ignorant of the requirements of Ch 6D of the Corporations Act before the legal advice was received, he adduced no evidence to support such a finding. It is reasonable to infer (and I find) that had Mr La Barrie received legal advice at an earlier time, he would have ignored it, just as he ignored the advice of the Company’s lawyer when it was received. I find that Mr La Barrie knew that a compliant disclosure document included a requirement to include audited financial statements. I find that he was initially unwilling to incur that expense. I further find that Mr La Barrie later did not cooperate with Mr Noble’s attempts to perform an audit by providing the necessary records to facilitate it. He did not provide Mr Noble with even the most rudimentary information necessary for the audit to progress, nor did he take any step to facilitate the provision of the information by other means.

170    There is no basis to conclude that Mr La Barrie had any genuine intention to have audited financial statements prepared for the Company at all, and hence no basis to conclude that he intended to prepare a compliant disclosure document.

171    Mr La Barrie bears the onus of proving that he has acted honestly. Any director who acts contrary to legal advice cannot be found to have acted honestly in the relevant sense.

172    Of itself, that is sufficient to conclude that no relief under s 1317S or s 1318 can be granted, honesty being an essential prerequisite to the exercise of the Court’s discretion to grant Mr La Barrie relief under either provision. For completeness I will deal with the remaining submissions made on his behalf.

173    Mr La Barrie’s submission that investors have not been harmed because they were provided with information about their investment by way of the pitch decks, is startling to say the least. There is no reliable and verifiable evidence against which the accuracy of the information contained in the pitch decks can be assessed by the investors themselves, let alone the Court.

174    The pitch decks convey the impression that investors would have an interest in an entity that owned assets in the nature of intellectual property or at least an interest in a company operating a business for the commercial exploitation of that intellectual property. On the available evidence, there is no proper basis to conclude that the shareholders to whom the contravening offers were made have in fact invested in anything of that kind. It may be that they have nothing more than rights of a shareholder in a company that has advanced interest-free unsecured loans to other persons or entities pursuant to an undocumented arrangement and in circumstances where it is doubtful that verifiable records of the expenditure of the borrowed money have been kept at all. The circumstance that an asset in the nature of a loan finally appeared on the Company’s balance sheet in 2023 is remarkable for its timing (given there was no receivable of that kind in any prior financial year).

175    There is real doubt as to the reliability of the Company’s financial statements in any event given that they have not been audited and that two of the three directors had little financial oversight or information. The only auditor who had glimpsed the underlying records of the Company (specifically its accounting software) was of the view that they were not consistent with financial statements provided to shareholders. In light of that evidence, the submission that shareholders have been provided with adequate information concerning the nature and risks of their investments by means other than the provision of a compliant disclosure document is unsustainable.

176    I should emphasise that the Court’s present focus remains on the particular contraventions that are the subject matter of this proceeding and not on other wrongdoing. However, it is Mr La Barrie who has put the truth of the pitch decks in issue by raising their existence as a mitigating factor. On the material before me I am not satisfied that the pitch decks contain accurate information such that the failure to comply with s 727 with respect to each contravening offer has no real or lasting consequence.

177    To similar effect, it was submitted that in terms of improving consumer outcomes, the capital raising undertaken in this case “was not ‘predatory’”. I cannot and will not make a finding of that kind. Insofar as the submission was made in support of Mr La Barrie’s case under s 1317S and s 1318 of the Corporations Act, it was incumbent upon him to point to some evidence capable of positively supporting a finding of that kind. That is especially so in circumstances where the bank statements for accounts solely operated by Mr La Barrie show large amounts of money being diverted to accounts held by him personally or by family trusts in which he has a personal interest.

178    For similar reasons, the submission that the Court should find there to have been no loss or damage “as yet” arising from the contraventions must also be rejected. The records of the Company are so poor that it is not possible to discern its actual financial position. What is known is that the other directors could not independently provide ASIC with information about the conduct of a business for the exploitation of intellectual property, indeed they were ignorant of the entire corporate structure. What they knew about the disposition of investors’ funds was told to them (or not as the case may be) by Mr La Barrie.

179    It was further submitted that the Company was “still attempting to operate, and still intending to generate the returns on investment its shareholders sought when they invested and still hope to achieve”. Again, that is a bare assertion. The picture painted by the documentary evidence is too murky for any such finding to be made. It may reasonably be inferred that the “returns on investment” the shareholders sought were those forecast in the pitch decks. There is no evidence to support a conclusion that there was any reasonable basis in fact for those forecasts to have been made.

180    In addition, I find that Mr La Barrie has a disdainful attitude toward those investors who have complained about the ongoing failure to provide information about the status of their investment. His conduct in procuring terms with one shareholder requiring (as a condition of his exit) that he withdraw a query he had lodged with ASIC and that he cease communicating with other shareholders is especially revealing of Mr La Barrie’s contemptuous attitude toward the need to comply with the law.

181    As to the submission that Mr La Barrie has shown remorse and embarrassment by consenting to disqualification orders, his consent to that remedy will be taken into account when deciding the appropriate remedial response as a whole. For present purposes it is sufficient to observe that Mr La Barrie has for the most part remained defiant throughout this proceeding. Until the eleventh hour, he persisted with submissions that the proceeding has no utility, going so far as to assert that ASIC and its officers were acting in bad faith. A similar theme runs through the text of the so-called “petition”. I am not satisfied that Mr La Barrie’s belated consent to the disqualification order is an indication of him having a sudden epiphany about the need to comply with the law.

182    The suggestion that the shareholders are “mom and pop” investors having any kind of affinity with Mr La Barrie also has no proper foundation in the evidence. There is no reliable evidence that the shareholders are comfortable with their investments other than the bare assertions of Mr La Barrie himself. It has not been shown that the persons named in the “petition” are aware of the true financial position of the Company and the risks attending their investments. To describe them as “mom and pop” investors only serves to highlight their vulnerability.

183    In summary on this issue, the evidence discloses a disgraceful course of conduct on the part of Mr La Barrie, accompanied and explained by his defiant attitude to the law. There is no conceivable basis upon which to relieve him from liability under s 1317S or s 1318 of the Corporations Act.

Remedies against Mr La Barrie

Declaration of contravention

184    If the Court is satisfied that a person has contravened a civil penalty provision, the Court must make a declaration of contravention:  Corporations Act, s 1317E(1).

185    There will be a declaration of contravention meeting the requirements of s 1317E(2) of the Corporations Act, as follows:

On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the second defendant, Mr Simeon La Barrie, contravened s 727(6) of the Corporations Act on 101 occasions in relation to the affairs of the Company by, on each occasion:

(i)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with ASIC, contrary to s 727(1) of the Corporations Act; or by

(ii)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer disclosure meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

186    It is necessary to use the word “or” in the declaration to delineate between the two limbs in each of s 727(1) and (2) and between the provisions themselves. That is because ASIC’s submissions invited the Court to make findings that, taken together, amount to 404 contraventions by Mr La Barrie, yet only 101 contraventions are alleged on the Amended Originating Process and in the Concise Statement. The declared contraventions should not exceed the alleged number. The relevant finding is that s 727(6) was contravened 101 times.

187    By his admissions, Mr La Barrie did not cavil with any one of the alternate routes to that finding, and the route taken would make no difference in my consideration of the remaining remedies.

Penalty

188    The Court’s power to order Mr La Barrie to pay to the Commonwealth a pecuniary penalty is conferred under s 1317G of the Corporations Act. It provides:

Court may order person to pay pecuniary penalty

(1)    A Court may order a person to pay to the Commonwealth a pecuniary penalty in relation to the contravention of a civil penalty provision if:

(a)    a declaration of contravention of the civil penalty provision by the person has been made under section 1317E; and

(b)    if the contravention is of a corporation/scheme civil penalty provision …

…

(c)    if the contravention is of a financial services civil penalty provision that is not a Part 7.7A civil penalty provision …

…

(d)    if the contravention is of subsection 1211B(1) or (2) (complying with the Passport Rules for this jurisdiction) …

…

The order is a pecuniary penalty order.

…

Maximum pecuniary penalty

(2)    The pecuniary penalty must not exceed the pecuniary penalty applicable to the contravention of the civil penalty provision.

Pecuniary penalty applicable to the contravention of a civil penalty provision—by an individual

(3)    The pecuniary penalty applicable to the contravention of a civil penalty provision by an individual is the greater of:

(a)    5,000 penalty units; and

(b)    if the Court can determine the benefit derived and detriment avoided because of the contravention—that amount multiplied by 3.

Pecuniary penalty applicable to the contravention of a civil penalty provision—by a body corporate

(4)    The pecuniary penalty applicable to the contravention of a civil penalty provision by a body corporate is the greatest of:

(a)    50,000 penalty units; and

(b)    if the Court can determine the benefit derived and detriment avoided because of the contravention—that amount multiplied by 3; and

(c)    either:

(i)    10% of the annual turnover of the body corporate for the 12-month period ending at the end of the month in which the body corporate contravened, or began to contravene, the civil penalty provision; or

(ii)    if the amount worked out under subparagraph (i) is greater than an amount equal to 2.5 million penalty units—2.5 million penalty units.

Contrary intention in relation to pecuniary penalty applicable

(5)    Subsections (3) and (4) apply in relation to a contravention of a civil penalty provision by an individual or a body corporate unless there is a contrary intention under this Act in relation to the pecuniary penalty applicable to the contravention. In that case, the pecuniary penalty applicable is the penalty specified for the civil penalty provision.

Determining pecuniary penalty

(6)    In determining the pecuniary penalty, the Court must take into account all relevant matters, including:

(a)    the nature and extent of the contravention; and

(b)    the nature and extent of any loss or damage suffered because of the contravention; and

(c)    the circumstances in which the contravention took place; and

(d)    whether the person has previously been found by a court (including a court in foreign country) to have engaged in similar conduct; and

(e)    in the case of a contravention by the trustee of a registrable superannuation entity—the impact that the penalty under consideration would have on the beneficiaries of the entity.

189    As can be seen, in the case of Mr La Barrie as an individual, the pecuniary penalty applicable to each contravention of s 727(6) of the Corporations Act must not exceed the greater of:

(1)    5,000 penalty units; or,

(44)    if the Court can determine the benefit derived and detriment avoided because of the contravention, triple the amount of that benefit or avoided detriment:  Corporations Act, s 1317G(2) and (3),

190    For the purpose of that comparison, it is necessary to first ascertain the monetary value of 5,000 penalty units. The value of a single unit is fixed from time to time under s 4AA of the Crimes Act 1914 (Cth). At relevant times, they were as follows:

(1)    up to and including 30 June 2020 (during which 49 contravening offers were made), one unit equated to $210.00, such 5,000 units equated to $1,050,000.00; and

(45)    between and including 1 July 2020 and 10 February 2022 (during which time 52 contravening offers were made), one unit equated to $222.00, such that 5,000 units equated to $1,110.000.00.

191    Further increases to the penalty unit value came force on 1 January 2023 and 1 July 2023. However, none of the contravening offers listed in the schedule to the Amended Originating Process were alleged to have occurred at a time when the higher values were in force.

192    The total monetary value of the penalty units is as follows:

(1)    for the 49 contraventions committed up to and including 30 June 2020, the total is $51,450,000.00;

(46)    for the 52 contraventions committed on and from 1 July 2020, the total is $57,720,000.00;

(47)    the accumulated total is $190,170,000.00.

193    For the purposes of s 1317E(3), ASIC submitted that the Court was in a position to ascertain the “benefit” that Mr La Barrie had derived from his contraventions. The benefit was said to equate to the total amount of capital raised by virtue of the offers having been made. On that approach, the benefit derived from 101 contraventions (considered in their totality) was $1,379,750.00 which, when tripled, equates to $4,139,250.00. That is less than the totality of the penalty units, as calculated above. Accordingly, it is not necessary to decide whether the capital raised by reason of the contraventions is properly characterised as a benefit received by Mr La Barrie personally.

194    I would arrive at the same conclusion if the comparison was done by reference to each contravention separately. That is because the capital raised by each contravention (even if described as a benefit to Mr La Barrie) was less than 5,000 penalty units. The penalty unit figure therefore applies.

The purpose of pecuniary penalties

195    The purpose of a civil penalty is the promotion of the public interest in compliance with the provisions of the Corporations Act, more particularly by the specific deterrence of the contravener and general deterrence to prevent like contraventions by others:  Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450, Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ (at [9]). The purpose is not to inflict punishment:  Pattinson at [15], citing The Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482.

196    The factors that may be taken into account in assessing an appropriate penalty to achieve the deterrent objective were considered by French J (as his Honour then was) in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 (at 52,152 – 52,153). In their application to a corporate contravener, they include:

1.    The nature and extent of the contravening conduct.

2.    The amount of loss or damage caused.

3.    The circumstances in which the conduct took place.

4.    The size of the contravening company.

5.    The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.    The deliberateness of the contravention and the period over which it extended.

7.    Whether the contravention arose out of the conduct of senior management or at a lower level.

8.    Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.

9.    Whether the company has shown a disposition to co‑operate with the authorities responsible for the enforcement of the Act in relation to the contravention.

197    As the High Court emphasised in Pattinson, some of those matters relate to the character of the contravening conduct, whilst others relate to the character of the contravener. The plurality also emphasised that the list of relevant factors is not rigid and is not to be utilised as if it were a legal checklist (at [19]). It remains the Court’s task to identify the appropriate penalty having regard to the particular facts and circumstances of the case.

198    In performing that task, the Court must ensure that the “final, total or aggregate, penalty is not unjust or out of proportion to the circumstances of the case”:  Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383, Stone and Buchannan JJ (at [42]). The so-called totality principle “looks at all factors going to penalty (not just the course of conduct) to determine whether the total overall penalty is appropriate”:  Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd trading as Bet365 (No 2) [2016] FCA 698, Beach J (at [8]).

199    Concepts of proportionality do not apply in the civil remedy regime established under the Corporations Act, at least not in the same sense as they would apply in a criminal law punitive context. However, as I explained in Director of the Fair Work Building Industry Inspectorate v Robinson (2016) 241 FCR 338 in the context of the civil remedy regime established by the Fair Work Act 2009 (Cth) (and equally applicable here):

67    Proportionality is nonetheless a critical objective in exercising the discretion conferred by s 546 of the FW Act. That is because the degree of seriousness of a contravention is relevant to ascertain ‘the assessment of a penalty of appropriate deterrent value’:  CSR at [42]. A penalty of appropriate deterrent value is one that recognises that the maximum penalties prescribed in the statute are appropriately imposed in cases where the need for deterrence is the most pronounced. There remains, in addition, a discretion not to impose a penalty at all if the statutory purpose of deterrence would not be served by the imposition of one.

68    The seriousness of the conduct constituting the contravention is an important indicator of the need for deterrence in a particular case, but is not the sole indicator. Consistent with the reasoning of French J (as he then was) in CSR, in all cases it is proportionality in relation to the need for deterrence that must be achieved, having regard to all relevant circumstances, including the objective seriousness of the contravention before the Court.

69    It should also be recognised that penalties fixed for a deterrent purpose are intended to have an attitudinal effect:  dissuasion. It is for this reason that my assessment of the seriousness of the conduct of the respondents places appropriate emphasis on the mental attitudes accompanying their physical acts.

200    In addition, in a case involving multiple contraventions (such as the present), the Court may have regard to the interrelationship between the legal and factual elements of the contraventions so as to ascertain whether they form a part of a course of conduct. As Middleton and Gordon JJ explained in Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 269 ALR 1:

39    As the passages in Williams explain, a ‘course of conduct’ or the ‘one transaction principle’ is not a concept peculiar to the industrial context. It is a concept which arises in the criminal context generally and one which may be relevant to the proper exercise of the sentencing discretion. The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is ‘the same criminality’ and that is necessarily a factually specific enquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions.

…

41    As noted above …, the principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, the court must ensure that the offender is not punished twice for the same conduct. In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion:  Johnson v R (2004) 205 ALR 346; [2004] HCA 15 at [3] – [4] and [34] and Attorney-General v Tichy (1982) 30 SASR 84 at 92 – 93 (Tichy). It is a tool of analysis (Tichy 93) which a court is not compelled to utilise:  Royer v Western Australia [2009] WASCA 139 at [21]-[34] and [153]-[156] (Royer).

42.    A court is not compelled to utilise the principle because, as Owen JA said in Royer at [28], ‘[d]iscretionary judgments require the weighing of elements, not the formulation of adjustable rules or benchmarks’. The exercise of the sentencing discretion does not fall to be exercised in a vacuum. It is a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives:  see McHugh J in AB v R (1999) 198 CLR 111; 165 ALR 298; [1999] HCA 46 at [14]. For the same reasons, and contrary to the appellants’ submissions, even if offences are properly characterised as arising from the one transaction or a single course of conduct, a judge is not obliged to apply concurrent terms if the resulting effective term fails to reflect the degree of criminality involved. Or, in the case of fines, a judge is not obliged to start from the premise that if there is a single course of conduct, the maximum fine is, in the present case, $110,000 for the CFMEU and $22,000 in the case of Mr Mates.

(emphasis in original)

201    The course of conduct does not warrant the imposition of a single penalty as though there were only one contravention. As Wigney J put it in Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 (at [268]):

There would also appear to be cases where the court has, purportedly pursuant to the course of conduct principle, grouped together separate contraventions which were considered to be part of a single course of conduct and imposed a single penalty for that course of conduct. Ordinarily, however, other than where there is a specific statutory provision which permits the imposition of a single penalty in respect of multiple contraventions, or perhaps in cases where the parties agree to the imposition of a single penalty for practical or pragmatic reasons, separate penalties should be imposed for each contravention:  Director, FWBII v CFMEU; Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; 262 FCR 243 at [227]. The application of the course of conduct principle, which is really just a tool to assist the Court in arriving at the appropriate penalty for the contraventions, involves the adjustment of the individual penalties to take into account the single course of conduct and to avoid double punishment, not the imposition of a single penalty:  Yazaki at [226]-[227] and [236].

The appropriate penalty

202    ASIC seeks the imposition of a penalty against Mr La Barrie in the amount of $2 million. That figure represents a small fraction of the maximum, calculated in accordance with the s 1317G of the Corporations Act. It approximates the maximum penalty that could be imposed for just two contraventions of s 727(6) of the Corporations Act, in a case where 101 contraventions are established.

203    I am satisfied that the contraventions formed part of a continuing course of conduct to the extent that they involved the same underlying state of affairs, the same fundraising scheme, the same ongoing practice of offering and issuing shares in connection with the same Company and the same asserted commercial enterprise. As mentioned above, that does not mean that the Court should treat the 101 contraventions as though they were a single contravention with a lower maximum. The maximum penalty remains the cumulative amounts calculated above. However, in concluding that the maximum penalty should be fixed at $2 million, the course of conduct principle has been given considerable weight.

204    In light of what follows, the figure of $2 million is an appropriate response having regard to the totality of the conduct. In so concluding I have placed significant weight on ASIC’s considered view as to the appropriate financial response, given its role as the regulator. Were it not for that deference I would have imposed a higher penalty than that agitated for, in the limited sense that the figure of $2 million is at the lower end of the range of appropriate outcomes in light of all of the relevant factors. I am satisfied that it is an appropriate response when considered together with the other remedies.

205    Mr La Barrie’s submission that there should be no financial penalty must be rejected.

206    His primary submission was to the effect that the penalty sought by ASIC is “punitive to an extraordinary degree”. In addition, he submitted that:

(1)    the Company is “in the latter stages of commercialisation of software” and to now impose penalties upon him and the other defendants would “almost certainly” mean that the Company could not continue to operate, that intellectual property would need to be sold to fund the penalties and that the “mum and dad” investors would lose their money;

(48)    the penalty sought by ASIC would impose financial hardship upon him;

(49)    he has made full and frank admissions in relation to the contraventions and co-operated with ASIC during its investigation processes;

(50)    the Company has rectified the record keeping problems that resulted in its earlier conviction (by holding catch-up AGMs and preparing financial statements);

(51)    he has been honest in his dealings with shareholders, and although the “ownership structure is still incomplete” that is well-known and understood by the shareholders; and

(52)    the circumstance that he has consented to an order disqualifying him from acting as a director of a company in Australia is sufficient to secure the protection of the public from further contraventions by him.

207    To the extent that Mr La Barrie’s submissions relevant to mitigating the penalty repeated those made in support of the application to be relieved from liability altogether, they are rejected for reasons I have already made plain.

208    On the material before me I am not satisfied that the imposition of the $2 million penalty on Mr La Barrie personally would have the effect on the Company (and hence on its shareholders) as alleged by him. That submission proceeds from an assumption that Mr La Barrie would be entitled to draw on the Company’s resources to fund his personal liability to pay a penalty imposed upon him by his own wrongdoing. It is an extraordinary submission for a company director to make, particularly a director who purports to have the best interest of the Company’s shareholders at heart. In light of the submission, the Court will invite further submissions as to whether there should be an order of the permissible kind discussed by the High Court in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157, Keane, Nettle, Gordon JJ (at [118] – [120]) so as to ensure that the purpose of the penalty imposed personally against Mr La Barrie may be achieved without detriment to the Company and its shareholders.

209    I accept that the imposition of a $2 million penalty would have significant financial impact on most individuals. However, it does not follow that a penalty fixed in that amount has a punitive purpose. The difficulty in the present case is that Mr La Barrie has adduced no evidence as to his current financial situation. To the extent that it is submitted that the penalty would be so personally ruinous as to no longer serve a deterrent purpose, it was incumbent upon him to support the submission by adducing cogent evidence of his financial position and asserted inability to pay.

210    I have mentioned ASIC’s submission that Mr La Barrie continued to engage in contravening conduct in breach of his Undertaking, specifically by raising money by way of loans, which meet the description of securities. Whilst that is correct, ASIC did not assist the Court to find that Mr La Barrie must be taken to have known that the raising of money by way of loans would itself amount to a breach of the Undertaking. In their examinations Mr La Barrie and Mr Hafer referred to the need to raise funds by way of loans because the Company could not issue shares without a compliant disclosure document. The proposition that raising loans amounted to a breach of the Undertaking was not put to them in the examinations (at least not so far as is evidenced on the transcript portions admitted in this proceeding). For the purpose of assessing remedies I will not proceed on the basis that the contraventions involving the raising of money in the nature of debt (rather than equity) were knowing contraventions. In addition, I do not consider ASIC’s submissions on relating to the asserted breach of the Undertaking to be sufficiently specific in attributing conduct and states of mind to each particular defendant and otherwise too general to support a conclusion as serious as a breach of an undertaking having statutory consequences: Corporations Act, s 93AA. In concluding that $2 million is an appropriate penalty I have not included any finding to the effect that the Undertaking was breached. To be clear, I have left the question of breach undecided and remain satisfied that the penalties to be imposed are appropriate without taking that subject matter into account.

211    In addition, ASIC submits that there is a basis to find that Mr La Barrie (and Mr Hafer) has continued to engage in contravening conduct after interlocutory injunctions were granted in this proceeding restraining that conduct. For present purposes I consider it neither necessary nor appropriate to express a view in relation to that submission. To the extent that there has been a breach of the Court’s orders, the allegation may be the subject of contempt proceedings resulting in criminal sanction including imprisonment:  see for example Tax Practitioners Board v Williams [2023] FCA 63. Allegations of breach of the Court’s orders should be the subject of a separate and discrete proceeding having regard to the rights that may be asserted by Mr La Barrie if the issue is to be pursued.

212    I afford some weight to the circumstance that Mr La Barrie admitted the contraventions. Had the admissions not been made, the penalty imposed would have been 10% higher. The discount is small, and deliberately so. The admission of contravention came at the eleventh hour. Moreover, it was coupled with an entirely unmeritorious claim that s 1317S and s 1318 should apply. In addition, Mr La Barrie complained that ASIC had acted improperly in pursuing him and the Company. The late admission meant that ASIC was not spared the inconvenience and expense of preparing for a trial on all of the issues against him, notwithstanding that admissions had been made by the Company and Mr Hafer. That included the inconvenience and expense of anticipating the exemptions that might apply, persisting until Mr La Barrie eventually admitted (in the course of the trial) that none of them did. Until just prior to the trial, Mr La Barrie had signalled his intention to call witnesses, and yet he did not do so. The admissions are relevant, however the case is one in which the making of the offers, the need for a disclosure document and the absence of a compliant disclosure document were all matters that could not on any reasonable view be seriously contested on the facts.

213    In addition, to the extent that the late admission is relied upon as evidence of Mr La Barrie suddenly gaining insight into the importance of complying with the law, they do little to assist him. That is because Mr La Barrie has sought to rely on a so-called “petition” and in doing so has lent his support to statements contained in that document critical of ASIC for bringing this proceeding.

214    In addition, I take into account the circumstance that Mr La Barrie was a director of the Company in the financial years to which the criminal proceedings in the Adelaide Magistrates Court related. That conviction against the Company was not a sufficient lesson in the importance of the need to comply with the requirements of the Corporations Act.

215    I find that Mr La Barrie has a reckless attitude when it comes to the provision of information to shareholders of the Company and that the contraventions in the present case are a manifestation of that attitude. His disregard for the law is not likely to change unless penalties of a significant magnitude are imposed against him personally. Given the very significant need for a personal deterrence, the penalty sought by ASIC is appropriate and will be imposed, albeit via a different course of reasoning to that urged upon the Court by ASIC.

216    The penalty is also justified having regard to the need for general deterrence, especially given the pivotal role of s 727 of the Corporations Act in the scheme established under Ch 6D outlined earlier in these reasons. There is an obvious need to deter future contraveners from the temptation of engaging in like conduct should they consider the benefits of that course to be worth the risk of personal financial sanction.

Disqualification

217    A person may be disqualified from managing corporations for a period the Court considers appropriate if a declaration has been made under s 1317E that the person has contravened s 727, and the Court considers that the disqualification is justified:  Corporations Act, s 206C.

218    The power to make a disqualification order may also be made against a person under s 206E(1)(a) of the Corporations Act, relevantly if the person:

(i)    has at least twice been an officer of a body corporate that has contravened this Act … while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or

(ii)    has at least twice contravened this Act … while they were an officer of a body corporate;  …

219    In either case, the Court may have regard to the person’s conduct in relation to the management, business or property of any corporation, and any other matters that the Court considers appropriate:  Corporations Act, s 206C(2), s 207E(2).

220    In the present case it is sufficient to consider the exercise of the power under s 206C. I am satisfied that the conditions necessary for the exercise of the power exist. No submission was made to the contrary.

221    ASIC seeks a disqualification order for a period of 12 years against Mr La Barrie. Mr La Barrie consented to a disqualification order for that period. However, he did so as a component part of his submissions relating to all remedies, which included a submission that there be no financial penalty imposed upon him, disqualification being sufficient to safeguard the public against future contraventions.

222    I have rejected the submission that there should be no penalty imposed. In the circumstances, I will not base a disqualification order on Mr La Barrie by acting upon his consent. Instead, I will proceed to explain why disqualification for the period sought by ASIC is justified on its substantial merits, having regard to the fact that it will operate in addition to other remedial orders.

223    The relevant principles were discussed at some length by Gordon J in Registrar of Aboriginal and Torres Strait Islander Corporations v Murray [2015] FCA 346 at [220] (citing Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 (at [56]) and I have had regard to them in identifying the relevant considerations below.

224    The salient features of Mr La Barrie’s case include his:

(1)    propensity to knowingly breach the requirements of the Corporations Act, demonstrated by his ignoring legal advice relating to the requirement;

(53)    disdain for the role of ASIC persisting with its investigation and this proceeding;

(54)    disdain for shareholders who made reasonable requests for information concerning the Company’s affairs;

(55)    holding offices as director and secretary of the Company over a period in which it committed criminal offences relating to its failure to lodge returns with ASIC;

(56)    failure to have the Company’s financial statements audited, including by ignoring requests for information to facilitate the audit following the engagement of Mr Noble;

(57)    presiding over the Company in circumstances where an undocumented loan appeared on the balance sheet for the first time in 2023 whilst at the same time drawing on the capital raised by the contravening conduct to finance his personal living expenses;

(58)    continued lack of insight into the seriousness of his contraventions, attributing his actions to a mere lack of proficiency with paperwork;

(59)    persistence with a submission that the shareholders have made no loss “as yet” whilst at the same time adducing no evidence capable of supplying a reasonable commercial basis for the profit projections contained in the pitch decks; and

(60)    inability to give any clear explanation of the corporate structure between the Company and foreign entities.

225    On any view of the facts, Mr La Barrie is plainly an unsuitable person to hold any office within a company in Australia. He has no regard for the law regulating corporations and I consider the likelihood of him gaining any relevant insight, at least the next decade, to be slim. In the circumstances, I am satisfied that the disqualification order will go some way to protect the public, including because it will facilitate ASIC’s role in detecting and preventing future attempted contraventions by him.

226    The facts of the present case are such that Mr La Barrie engaged another person (Mr Hafer) to assist him to induce investors to pay money for shares, and that money has been utilised overseas for purposes that are undocumented, unverifiable and possibly known only to him. I have taken into account the possibility that he may yet continue to use willing persons in Australia as his agent to effect wrongdoing, even with disqualification orders in place, and I have regard to the difficulty in detecting conduct of that kind. The disqualification for a period of 12 years will nonetheless go some way to meet the objective of public protection, considered as one part of a suite of other orders.

Injunction

227    The injunction sought by ASIC in the present case is cast in terms that would restrain Mr La Barrie from engaging in conduct that is already prohibited under the Corporations Act. However, as Palmer J observed in Australian Securities and Investments Commission v Mauer-Swisse Securities Pty Ltd (2002) 42 ACSR 605 (at [36]) there is utility in the injunction because:

…

•    where there is an appreciable — that is, not fanciful — risk of particular future contraventions of the Corporations Act by a defendant, it would serve a purpose within the contemplation of the Corporations Act that the court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct. Section 1324 evinces an intention that the possibly severe consequences and the relative promptness of proceedings for contempt of court be added to criminal prosecutions as a deterrent to contraventions of the Corporations Act;

…

228    The appreciable risk of future contraventions by Mr La Barrie justifies a permanent injunction. The risk arises not only because of his belligerent state of mind, but also because there is some evidence that he intends to continue to cause the Company to raise money in the nature of equity (as disclosed in the intellectual property valuation report) in circumstances where there is no evidence that he is at all concerned to cause an audit of the Company’s financial statements. It is appropriate that he be made to reflect on the consequences of criminal sanction (including imprisonment) should he be tempted to engage in any conduct in breach of the Court’s orders in any future capacity whether in connection with the Company or any other corporate entity.

229    The injunction sought on the Amended Originating Process is in a form restraining Mr La Barrie from doing acts in contravention of s 727 of the Corporations Act and is limited in its operation to the affairs of the Company “or in any Australian company which purports directly or indirectly to be engaged in the commercialisation of information technology”. The proposed period of the injunction is 12 years. I am satisfied that is an appropriate form of restraint, and that the period of the restraint is justified in all of the circumstances disclosed in these reasons.

230    To facilitate supervision of Mr La Barrie’s compliance with the injunction, ASIC seeks a further order mandating that Mr La Barrie, during the restraint period provide ASIC (within 48 hours of a written request) evidence sufficient to demonstrate that any monies accepted or solicited during the restraint period in relation to a relevant entity was not received in respect of a restrained order. That order takes the form of a mandatory injunction and is otherwise ancillary to the 12 year restraint. Whilst I am satisfied there is some utility in the order, I consider it necessary to qualify the restraint so as to make it clear that it is subject to any claim of privilege against self-incrimination or exposure to penalty that Mr La Barrie may make.

THE CASE AGAINST MR HAFER

231    ASIC alleges that Mr Hafer committed 101 contraventions of s 727(6) of the Corporations Act by distributing (or causing the distribution of) an application form to Australian investors for the issue of shares in the Company, in circumstances where the offer needed disclosure under Ch 6D of the Corporations Act:

(1)    without a disclosure document for the offer having been lodged with ASIC (contrary to s 727(1)); and

(61)    where the application form was not included in or accompanied by a disclosure document (contrary to s 727(2)).

232    In the alternative, it is alleged that Mr Hafer was involved in the contraventions of s 727(6) committed by both Mr La Barrie and the Company.

233    As in the case of Mr La Barrie, Mr Hafer’s admissions to the primary contraventions makes it unnecessary to consider whether he might also be liable by reason of his involvement in contraventions committed by others.

Finding of contraventions

234    Quite apart from Mr Hafer’s admissions, the evidence readily supports findings that he distributed application forms to the persons listed in the schedule to the Amended Originating Process on the dates alleged by ASIC. That conduct occurred in circumstances where a disclosure document was needed, and no disclosure document had been lodged with ASIC. No such document accompanied the application forms he distributed.

235    On the basis of Mr Hafer’s admissions (and in any event on the basis of uncontroverted evidence) Mr Hafer is liable for 101 contraventions either by virtue of his non-compliance with s 727(1) or by virtue of his non-compliance with s 727(2). For the purposes of what follows, the remedial response would be the same irrespective of which of the two provisions is in issue.

Should Mr Hafer be relieved from liability?

236    Mr Hafer invites the Court to find that prior to his receipt of legal advice, he was “clearly ignorant of the requirements under the Act”. The written submission made on his behalf went as follows:

After advice the breaches were done with knowledge but on the basis that without money the company could not continue to operate and could not develop its IP and therefore all investments (including the Directors own investments) would be lost. Whilst sale of the IP would have been the only remaining option to recover the shareholders investments.  …

237    Mr Hafer also relied on steps he had taken to improve the corporate governance of the Company since his appointment as a director (in conjunction with Mr Fry) described as follows:

(a)    Attempted to engage BDO as auditors:

(b)    Engaged Stephen Noble as auditor:  the engagement was terminated as Hafer and Fry were unable to obtain sufficient financial information from La Barrie and in any event it is acknowledged that audit could not have shown ownership by the Australian Company of the IP or the US Company

(c)    Engaged INSERT [sic] name as auditor

(d)    Engaged Automic Group as its Share Register;

(e)    Prepared 6 years worth of Annual Reports;

(f)    Undertook 6 AGM’s covering those years for which it was prosecuted and a year thereafter

(g)    Established a shareholders website with a login for current investors

(h)    Lodged the annual reports on the shareholder website

(i)    Attempted to lodge an IM with ASIC albeit the IM is acknowledged as being defective and in any event could not be compliant without audited financials also being lodged

(j)    Provided (acknowledged) non compliant company information characterised as ‘IM’s’ to shareholders with an acknowledged separate application form in the mistaken belief that such information was sufficient

Findings

238    The facts I have found in disposing of the case against Mr La Barrie will be taken into account for the purposes of Mr Hafer’s case, so far as they are relevant. I add the following.

239    Mr Hafer readily and repeatedly responded to Mr La Barrie’s ongoing requests to secure funds from existing or new investors. It was his practice to meet with prospective investors in face-to-face meetings. In most cases he handed them an application form, and in some cases emailed the application form to them or caused it to be emailed by another person. Mr Hafer then forwarded the completed application form in each case to Mr La Barrie for his approval. Mr Hafer was typically paid a commission based on 10% of the funds he raised. The total commission earned by Mr Hafer referable to the contravening offers was $137,975.00.

240    Distribution of the application forms was the only means by which Mr Hafer provided prospective investors with the details for the CBA Account into which investors’ money was deposited. Mr Hafer’s commission payments were transferred to him from that account by Mr La Barrie. Despite his status as a director, Mr Hafer otherwise exercised no oversight of the use of the investors’ money deposited into the CBA Account.

241    The information Mr Hafer provided to the investors took the form of the pitch decks, together with information he conveyed to them orally. Mr Hafer had no input into the content of the pitch decks. The information he provided to the investors was sourced entirely from Mr La Barrie. He has not suggested that he took any steps to verify its objective truth.

242    Against that general background (including findings I have made earlier in these reasons), I address each of the factual matters relied upon by Mr Hafer in support of his claim to be relieved from liability.

243    Mr Hafer’s assertion that he was “clearly ignorant” of the requirements of the Corporations Act before he received legal advice is not supported by the evidence. Like Mr La Barrie, upon receiving the legal advice, Mr Hafer made a conscious choice to continue to contravene s 727 of the Corporations Act. I infer that he would have engaged in the contravening conduct even if the legal advice had been received at an earlier time. His conduct in ignoring legal advice is indicative of an indifferent attitude to the law.

244    Mr Hafer’s assertion that he continued to contravene s 727 of the Corporations Act after receiving the advice because “without money the company could not continue to operate and could not develop its IP” also lacks any reliable evidentiary foundation. The content of Mr Hafer’s s 19 examination makes it plain that at the time of the examination the only source of information he had about the activities of the Company (or any other person or entity drawing on its funds) was Mr La Barrie.

245    I accept that Mr Hafer did not have factual access to records of the Company so as to enable him to have any meaningful control or oversight over its financial position. But that is hardly a matter weighing in his favour. He was not a hapless employee of the Company subject to the direction and control of Mr La Barrie. He was one of three directors comprising the Company’s Board. He and Mr Fry were together in a position to pass resolutions by a majority vote of that Board. There is no evidence that he ever proposed any resolution so as to bring himself and Mr Fry into possession of documents and verifiable information, even if over Mr La Barrie’s objection. The evidence does not support a finding that he has done anything at all to regularise the so-called “loan”, to clarify the terms and conditions on which it will be repaid, or to confirm and assert the rights of the Company vis a vis individuals or entities that have dissipated its funds.

246    Mr Hafer’s submission to the Court that he knowingly contravened the Corporations Act so as to give investors some chance to make a return is highly concerning and I reject it for several further reasons.

247    Mr Hafer did not give evidence. His factual submissions on that topic amount to bare assertions. An obvious difficulty with the assertion is that Mr Hafer has no evidentiary basis for the claim that the Company in which investors subscribed was in the business of developing intellectual property. On the basis of the evidence before me, I find that the only activity of the Company was the procurement of money from investors and the release of that money into the hands of Mr La Barrie and entities associated with him under an undocumented and unsupervised arrangement about which the other two directors knew very little.

248    In his examination, Mr Hafer said it was his understanding that the intellectual property was owned by the Singapore Company in any event. I consider him to have insufficient knowledge about the legal relationships between the relevant entities or the terms and conditions of any “loan” agreement or any other legal relationships to support any views he might express about the likelihood of shareholders receiving any return on their investment, whether in the short or long term. If the “business” of the Company involved the carrying on of a business for the development and commercialisation of intellectual property through “subsidiaries”, there is no reliable evidence about the financial position of the group to support a finding of the kind asserted.

249    In any event, s 727 of the Corporations Act did not operate so as to prevent the Company from raising further capital. Rather, it prevented the raising of further capital in circumstances where no compliant disclosure document had been lodged with ASIC and no disclosure document accompanied application forms. Mr Hafer had a choice to cease distributing application forms for so long as there was no accompanying compliant disclosure document. The inference that arises is that Mr Hafer chose instead to continue to breach the Corporations Act because he personally benefited from attracting yet more investment by his receipt of a commission, and I so find.

250    It is not to the point that Mr Hafer “attempted” to engage auditors for the Company. Those attempts mean nothing in circumstances where he knowingly committed contraventions of s 727 of the Corporations Act in circumstances where he knew that no audited financial statements existed.

251    To the extent that Mr Hafer took some steps to improve the Company’s corporate governance following his appointment as a director, those steps are taken into consideration.

252    In his examination, Mr Hafer said:

…  We might have cut some corners or not done things exactly the right way, but we tried to fix them where we could, so, yeah, and get the company back on track and so it was a matter of, you know, cleaning up – trying to clean the thing up, because [Mr La Barrie] had essentially gone overseas. He wasn’t – well, he wasn’t paying the Australian company the attention that it needed, that he needed to do

253    Even if that were the case, it does not explain why Mr Hafer directly and personally engaged in conduct in contravention of the Corporations Act. A person in his position, acting honestly, would have ceased the distribution of application forms for the issue of shares in the Company until such time as that could be done in compliance with the law.

254    I find that Mr Hafer has shown a willingness to repeat to shareholders anything said him by Mr La Barrie, without caring to independently establish the truth of it. The evidence does not support any finding that Mr Hafer exercised his powers as a director so as to put himself into the possession of documents and information sufficient to familiarise himself with the Company’s affairs, or to enable an audit of its financial statements to be conducted. In those circumstances, his asserted problems in dealing with Mr La Barrie’s shortcomings are not persuasive.

255    In summary, Mr Hafer has acted imprudently and recklessly with respect to the interests of the Company’s shareholders to such a degree that he cannot be said to have acted honestly within the meaning of s 1317G or s 1318 of the Corporations Act. No relief under those provisions will be granted.

Remedies against Mr Hafer

256    Mr Hafer’s submissions with respect to penalties in large part (but not entirely) mirrored what was said on Mr La Barrie’s behalf. Like Mr La Barrie, he contended that there should be no pecuniary penalty imposed because his consent to a disqualification order was sufficient to protect the public. I do not consider a disqualification order is sufficient of itself to protect the public. That is because Mr Hafer has the capacity to engage in like conduct in the future without having the status of a director. The contraventions in the present case were not committed because he had the status of a director, rather they were committed in spite of that status.

257    As in the case of Mr La Barrie, for the purpose of determining an appropriate penalty, I do not consider it necessary to consider whether Mr Hafer has breached the interlocutory injunction made at the commencement of this proceeding or the Undertaking given to ASIC before the proceeding commenced.

Declaration of contravention

258    There will be a declaration of contravention meeting the requirements of s 1317E(2) of the Corporations Act, as follows:

On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the third defendant, Mr Ewald Hafer, contravened s 727(6) of the Corporations Act on 101 occasions in relation to the affairs of the Company by, on each occasion:

(i)    distributing or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with ASIC, contrary to s 727(1) of the Corporations Act; or by

(ii)    distributing or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer information statement meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

259    As explained elsewhere in these reasons the word “or” appears in the declaration so as to limit the contraventions to 101, as alleged in the Amended Originating Process.

Penalty

260    As against Mr Hafer, ASIC seeks the imposition of a penalty in the amount of $600,000.00. I have concluded that penalty is not a sufficient reflection of the seriousness of Mr Hafer’s conduct and that a penalty of $800,000.00 should be imposed.

261    The cumulative maximum penalty for the 101 contraventions committed by Mr Hafer is calculated in the same manner discussed earlier in these reasons. On the assumption that the commission he received is a “benefit” for the purposes of s 1317G(4) of the Corporations Act, triple the commission amount ($413,925.00) is not greater than the monetary value of 5,000 penalty units per contravention ($109,170,000.00). The total maximum penalty is the latter sum.

262    The appropriate penalty will be determined on the basis that the contraventions formed a part of a course of conduct. As I have already emphasised, adopting that approach does not reduce the maximum penalty to that applicable to a single contravention, but it does explain why the penalty arrived at is a small fraction of the total maximum.

263    Mr Hafer joined in the submission that the penalties sought by ASIC were punitive. That submission is rejected for reasons I have already given in connection with Mr La Barrie.

264    To the extent that it was submitted that the penalty sought by ASIC would work such a hardship upon Mr Hafer so as to lose its specific deterrent effect, that submission has no foundation in the evidence, Mr Hafer having adduced no evidence of his personal financial position. There is no evidentiary basis for a finding that he does not have the capacity to pay.

265    I afford Mr Hafer credit for the admissions he made at the outset of the proceeding to the collective effect that the elements of the alleged contravention were fulfilled. That admission would have led to the trial of this action and the question of penalties being determined at a much earlier time, a course not possible because of Mr La Barrie’s conduct in the proceeding.

266    Were it not for Mr Hafer’s early admission I would have imposed a penalty in an amount 15% higher than that sought by ASIC. However, I do not consider the admission of itself sufficient to support a finding that Mr Hafer has had a recent change of attitude as to the importance of complying with the law. I am reinforced in that view by the facts asserted by Mr Hafer revealing his distorted view as to the interests of shareholders. In addition, Mr Hafer (like Mr La Barrie) invited the Court to find that the “petition” evidenced the existence of some shareholders who were content with the management of the Company and disgruntled by ASIC’s conduct in bringing this proceeding. I will make no such finding as explained elsewhere in these reasons.

267    There is an obvious need for specific deterrence in Mr Hafer’s case, notwithstanding his stated intention not to act as a company director in the future.

268    In addition, there is a significant need to deter others who may be minded to engage in like conduct, especially given the pivotal role of s 727 of the Corporations Act in achieving the protective purposes of Ch 6D of the Corporations Act.

269    The parties should be heard as to why the Court should not make an order restraining Mr Hafer from paying the penalty from the resources of the Company, given that he joined in a submission that a penalty against him would affect the shareholders’ interests.

Disqualification

270    Given the findings I have made about Mr Hafer’s acts, omissions and state of mind, he is plainly unsuitable to hold office as a director. In all of the circumstances, a period of eight years disqualification (as sought by ASIC) is appropriate.

Injunction

271    The injunction sought against Mr Hafer is in the same form as that sought against Mr La Barrie. The proposed period of the restraint is eight years. I am satisfied that is an appropriate restraint having regard to my conclusions about the seriousness of Mr Hafer’s conduct. An ancillary order mandating explanations for monies received is also appropriate and will serve to facilitate supervision of Mr Hafer’s compliance. As in the case of Mr La Barrie, that order will be subject to any claim against self-incrimination or exposure to penalty Mr Hafer may be advised to make.

The CASE AGAINST THE COMPANY

272    The elements of the contraventions done by Mr La Barrie and Mr Hafer must be attributed to the Company in accordance with s 1317QE of the Corporations Act.

273    The Company admitted the contraventions alleged against it. As in the cases of the directors, the findings of contravention will be limited to 101.

274    In Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561, Davies AJ concluded that a company contravened s 727(6) of the Corporations Act by the actions of its officers and employees (at [63]). The Company in the present case did not raise any legal impediment to a finding of contravention, proceeding from an assumption that a company is a person having the capacity to issue shares in itself. Even if such a submission were made, it would not prevent a declaration of contravention based on the alternative limb in both s 727(1) and s 727(2), relating to the distribution of application forms.

Declaration of contravention

275    There will be a declaration that the Company contravened s 727(6) of the Corporations Act by the acts of its officers Mr La Barrie and Mr Hafer, as follows:

On or around the dates specified in column 3 of the Schedule to the Amended Originating Process filed on 12 November 2024 the first defendant Open4Sale Global Ltd (ACN 159 248 067) (Company), by the acts and omissions of the second and third defendants, contravened s 727(6) of the Corporations Act 2001 (Cth) (Corporations Act) on 101 occasions in relation to the affairs of the Company by:

(i)    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where no disclosure document for the offer had been lodged with Australian Securities and Investment Commission (ASIC) contrary to s 727(1) of the Corporations Act; or by

(ii).    making or causing to be made an offer of securities or causing the distribution of an application form for an offer of securities that needed disclosure to investors under Pt 6D.2 of the Corporations Act in circumstances where the offer application form was not included in or accompanied by an offer disclosure meeting the requirements of the Corporations Act, contrary to s 727(2) of the Corporations Act.

Penalty

276    Section 1317G(4) of the Corporations Act provides that the maximum penalty to be imposed on a body corporate is the greater of:

(1)    50,000 penalty units; or

(62)    three times the benefit derived and detriment avoided because of the contravention, in addition to either:

(a)    10% of the Company’s annual 12-month turnover ending in the month the contravention began, or

(b)    2.5 million penalty units if 10% of the 12 month-turnover is greater than that amount.

277    Based on the existence of 49 contravening offers between 17 September 2019 and 30 June 2020 and 52 contravening offers between 1 July 2020 and 10 February 2020, the monetary value of 50,000 penalty units applied to the 101 contraventions is $1,091,700,000.00 (50,000 x 49 x 210 + 50,000 x 52 x 222).

278    ASIC submitted that the benefit derived from the contraventions equates to the capital raised by reason of the contravening offers. When tripled, that amounts to $4,139,250.00. It is not possible to determine the Company’s turnover for the purposes of calculating a maximum penalty under s 1317G(4)(c). However, it is reasonable to infer that the amount that would be arrived at by the annual turnover method would not exceed the total monetary amount of 50,000 penalty units for each of the 101 contraventions. I therefore proceed on the basis that the total maximum penalty for the contraventions is $1,091,700,000.00.

279    ASIC seeks pecuniary penalties amounting to $4.1 million against the Company. That is a fraction of the statutory maximum.

280    As in the case of Mr La Barrie and Mr Hafer, I proceed on the basis that the 101 contraventions constituted a course of conduct.

281    To the extent that the Company otherwise relied on the same arguments as Mr La Barrie and Mr Hafer in mitigation of penalty, those argument are rejected for the same reasons given in respect of the individuals.

282    A discrete argument advanced on behalf of the Company concerned the financial impact the imposition of any penalty might have. It was submitted that the Company was in the “latter stages of commercialisation of software developed to enable consumers and retail businesses to engage with each other over an ‘online to off-line’ or ‘020’ platform (O4Sale software)”. I have already concluded that there is insufficient evidence to support a finding that the Company was engaged in such activities, or that other entities drawing on its capital will one day make the Company’s shareholder rich, as asserted by Mr La Barrie during his examination.

283    It was further submitted that the Company’s ownership structure was “still incomplete” but “it is well-known to and understood by the shareholders”. That submission is disconnected from the evidence. It is apparent that the directors could provide little clarity about the legal relationships between the Company and other entities and yet the shareholders have been told (without any apparent foundation) that the Company has “subsidiaries”.

284    It is impossible to gauge the impact that a penalty in the amount sought by ASIC might have upon the Company, given the absence of audited financial statements. That situation is a consequence of the choices made by the Company’s directors over many years, as well as the choices made by the Company (through its directors) not to adduce evidence in this proceeding.

285    The Company’s submission that the imposition of the penalty would necessarily be ruinous must be rejected. If a penalty were to be imposed, it would be for those assuming control of the Company to assert any rights it may have against third parties to pursue such causes of action and realise such assets as it may have, so as to ensure that the penalty is paid.

286    If the statements of Mr La Barrie are to be believed, the Company may be the beneficial owner of shares in a foreign company owning intellectual property worth about $37 million. The submission that the imposition of a penalty might result in the intellectual property being sold may well have some foundation in fact. In all of the circumstances described in these reasons, I am not satisfied that would result in shareholders (being the persons affected by the contraventions) necessarily being in a worse position.

287    However, I do accept that the imposition of a penalty upon the Company itself may well have an adverse effect on the very shareholders affected by the 101 contraventions. That is not because I am persuaded that they will lose an existing opportunity to become wealthy because of the commercialisation of any intellectual property that may exist. Rather, it is because the penalty may result in the Company being unable to pay the penalty as and when it falls due and so be wound up in insolvency with no return to shareholders of any of the capital they advanced. That may take the Company out of the control of the shareholders who may collectively decide its future, including the future composition of the Board of directors.

288    Critically, the need for specific deterrence in the case of the Company is diminished, given that Mr La Barrie and Mr Hafer will not be permitted to participate in the management of the Company and because they each face the spectre of criminal sanction (including possible imprisonment) should they breach the Court’s orders. The exclusion from the Company of those wrongdoers significantly reduces the risk of future contraventions by the Company itself.

289    The removal of Mr La Barrie and Mr Hafer from the Company’s management creates a circumstance in which the shareholders (83 of whom are affected by the contraventions forming the subject matter of this proceeding) may exercise their own rights within the corporate structure to replace directors with alternate persons who will comply with the law and take active steps to advance and protect their rights and interests.

290    As for general deterrence, I consider that objective to be served by the remedies granted against Mr La Barrie and Mr Hafer.

291    Weighing all of those considerations in the balance I am not satisfied that the imposition of a penalty on the Company would serve a deterrent purpose, being the only purpose for which civil penalties are to be imposed. I consider the prospect of future contraventions of s 727 by the Company itself (unshackled from the control of the two contravening directors) to be very low.

292    There will, however, be an injunction restraining the Company from further like contraventions of s 727 of the Corporations Act for a period of 12 years so as to reinforce in its replacement controlling minds the importance of complying with the capital raising regime. There will be a further order mandating the provision of information to facilitate supervision of the Company’s compliance with the injunction. As a corporate body, the Company does not have a common law right to claim privilege against self-incrimination or exposure to penalty and the order will not be so qualified.

FURTHER SUBMISSIONS

293    I have mentioned the need for further submissions concerning the possibility that Mr La Barrie and Mr Hafer may seek to have their penalties paid from the Company’s own resources. That issue has arisen because each of them positively submitted that a penalty against them would affect the Company’s shareholders.

294    The parties will initially be heard on the question of whether there should be an interim injunction restraining their recourse (by any means) to any of the Company’s resources until such time as the terms of any ongoing order can be argued, affording all parties an opportunity to be heard.

295    The parties should also be heard as to the form of orders relating to costs.

Associate:

Dated:    29 August 2025